Speaker 1: Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week. If
Speaker 1: you threaten other nations and try to use energy as
Speaker 1: a geopolitical weapon, energy importing nations will find alternatives. All
Speaker 1: they want is energy, and if you tell them that
Speaker 1: the energy you provided insecure, they will alternatives. And at
Speaker 1: the moment, obviously there's an energy transition was already in
Speaker 1: a degree of swing, and it's really being fueled by
Speaker 1: what's happened. David Fickling on the year that hastened the
Speaker 1: greatest global energy transformation since the nineteen seventies. Later in
Speaker 1: the path, President Duping didn't quite have all the political power,
Speaker 1: but the next premiere will probably be his men, and
Speaker 1: the heat will probably be change. And that means that
Speaker 1: the economic hurrican is likely to be met, and that
Speaker 1: will have global financial implications going into commodities at the
Speaker 1: asset prices. Shulie Wren on expectations for China's annual parliamentary
Speaker 1: meeting the National People's Congress starting Sunday. First though of
Speaker 1: Bloomberg Opinions, John Authors, as we kick off new months
Speaker 1: in markets, John, is this a market in the process
Speaker 1: of repricing coming to a conclusion, or do we still
Speaker 1: have completely disparate opinions on what's going on out there.
Speaker 1: It certainly looks at the moment as though we are
Speaker 1: repricing that we are at least in the process of
Speaker 1: another wave towards accepting that rates will be higher for
Speaker 1: longer and that bond yields will have therefore to be higher. Briefly,
Speaker 1: you had ten year yields here in the States hit
Speaker 1: four percent on Wednesday. You now have German two year
Speaker 1: bunt yields at a post crisis high. They haven't been
Speaker 1: as high as they currently now, which is above three percent,
Speaker 1: since the actual eve of the Lehman bankruptcy way back
Speaker 1: in two thousand and eight. So the move towards some
Speaker 1: kind of an acceptance that rates will have to stay higher,
Speaker 1: but also it's not all negative, and some kind of
Speaker 1: an acceptance that we're back to an economy that looks
Speaker 1: a bit more like what it was for many decades before.
Speaker 1: I noticed we're not using the word normal because we
Speaker 1: still don't know what normally. I'm not sure how much
Speaker 1: that helps to use that, but where in obviously we're
Speaker 1: back in the world where inflation is relevant and affect
Speaker 1: of life to be concerned about really for the first
Speaker 1: time in three decades, I'd say, and that obviously matters
Speaker 1: a lot. And we're also in the world therefore where
Speaker 1: permanent minimal interest rates can no longer I think we've
Speaker 1: now reached the point where everywhere outside of Japan accepts
Speaker 1: that that's no longer going to be the case, that
Speaker 1: we have got out of that regime into a different way.
Speaker 1: You have to imagine that because four percent caused such
Speaker 1: a I don't want to say shudder, but it definitely
Speaker 1: caused a reaction that we're not done yet. That's not
Speaker 1: the peak now, and again it depends which countries you're
Speaker 1: looking at. Again, bear in mind, all of this is
Speaker 1: balanced against the fact that the economic uses broadly good.
Speaker 1: It's spectacularly that's part of the problem, yes, exactly, particularly
Speaker 1: in China, it's spectacularly good because it looks as though
Speaker 1: what many people must admit, include myself, were worried about
Speaker 1: is that when they released the COVID restrictions, you would
Speaker 1: have a really serious dose of the pandemic which would
Speaker 1: slow them down for a while before they began then
Speaker 1: to enjoy economic benefits. It looks as though it hasn't
Speaker 1: been that severe, judging by how strongly their PMI data
Speaker 1: has improved. We're only just starting to get post reopening
Speaker 1: data now, though, so we don't really know yet right
Speaker 1: so it's possible we were in the course of an overreaction,
Speaker 1: but the first data that takes into account all of
Speaker 1: February does look very positive, and that makes that makes
Speaker 1: a difference. That brings up the question of being data dependent,
Speaker 1: which is obviously what the FEND says it is all
Speaker 1: the time. What does that even mean anymore? Do we
Speaker 1: want strong data or do we want weak data? I
Speaker 1: think I think data dependency really is more meaningful myself
Speaker 1: than it has been for a while, in the sense
Speaker 1: that trying to work out what the fed's reaction function
Speaker 1: would be, how hawkish it feels it needs to be
Speaker 1: is beside the point for the time being. If inflation
Speaker 1: doesn't come down pretty swiftly, they will have to keep
Speaker 1: tightening the screws. The data we got last month, it
Speaker 1: wasn't that people change their minds about how the FED
Speaker 1: would react that really there was really no Fed speak
Speaker 1: that really shifted the market. It was just a series
Speaker 1: of data points that made it clear that higher rates
Speaker 1: are going to be needed, or at least rates are
Speaker 1: high for longer. Yes, And I think that's probably where
Speaker 1: we are for now. Like there is enough uncertainty that
Speaker 1: we are all probably better trying to work out where
Speaker 1: the economy is going. Then we are trying to work
Speaker 1: out how the FED would react to it. As it
Speaker 1: stands at the moment. It's obviously reasonable to think that
Speaker 1: that rates will be rising faster than people thought a
Speaker 1: month ago. John, is it possible in any scenario that
Speaker 1: the major economies, and I suppose i'm talking, you're the
Speaker 1: US and China avoid recession completely? It's a bit like
Speaker 1: that line in Dumb and Dumber and Carrie says, so
Speaker 1: you're telling me there's a chance. I mean, yeah, yeah,
Speaker 1: there's a chance. I still find it very hard. I
Speaker 1: still find it very hard to see that happening. You.
Speaker 1: I mean in the case of the US. Obviously, there
Speaker 1: is this this issue that the FED is almost certainly
Speaker 1: not going to under hike. It might over I believe
Speaker 1: them when they say that they are convinced that the
Speaker 1: greater risk is of letting inflation get under control than
Speaker 1: of overdoing it. Therefore, the more the economy does rally,
Speaker 1: the more there will be no choice but to squelch it.
Speaker 1: Is it conceivable that it's such a mild recession we
Speaker 1: eventually yet that we don't really think if it is
Speaker 1: a recession. I guess that's possible. You had the one,
Speaker 1: the recession of the early nineties, the recession after the
Speaker 1: dot com bubble were not the apologies to anybody who
Speaker 1: did happen to lose their job during those episodes, but
Speaker 1: in general, they were not major moments that really affected
Speaker 1: the quality of life. And we didn't hear any complete
Speaker 1: horror stories out of earning season. We didn't hear any well. Again,
Speaker 1: that's another intriguing one, is just how long that ball
Speaker 1: can stay here? But yes, I think with earnings, the
Speaker 1: issue is that it's very difficult to raise rates, to
Speaker 1: have a slowdown in activity without there being a very
Speaker 1: significant effect on profits. No, you're quite right, we haven't
Speaker 1: seen that big an impact thus far. When companies are
Speaker 1: still making profits, they still have money to reinvest or
Speaker 1: to inject into the rest of the markets via dividends
Speaker 1: or buy backs. It would probably suit the FED to better,
Speaker 1: or those fighting inflation better if companies weren't doing so
Speaker 1: well Yeah, so I think that's another instance where the
Speaker 1: fact that the lag in terms of really crimping economic
Speaker 1: activity after rates start to go up, that lag is
Speaker 1: proving longer than some had hoped, and that probably means
Speaker 1: ultimately that the chances of an overcorrection at the end
Speaker 1: of the cycle rise. Well, it's fascinating because even in
Speaker 1: places like Australia and New Zealand where the lag isn't
Speaker 1: as long, usually because it goes straight to housing, we're
Speaker 1: still seeing those central banks continue to have to raise rates.
Speaker 1: So it really as a phenomenally strange time. Will there
Speaker 1: have to be books written about this? Monetary policy wise,
Speaker 1: have we learned a lot? I'm not sure we've learned
Speaker 1: very much yet. I mean, we were still learning about
Speaker 1: the financial crisis of two thousand and eight. I can
Speaker 1: remember thinking at the time, I'm probably going to have
Speaker 1: to spend the rest of my career trying to understand
Speaker 1: what just happened. There are some very important senses in
Speaker 1: which the world is only now coming out of the
Speaker 1: post crisis environment. And yeah, there's a very good argument
Speaker 1: that particularly COVID, possibly also the reaction to the invasion
Speaker 1: of Ukraine were the shocks that were needed to knock
Speaker 1: us out of it. Whether in years to come there'll
Speaker 1: be an analogy with World War two ending the depression
Speaker 1: after a similar amount of time, it's conceivable that, you know,
Speaker 1: a really bad, truly shocking event knocks the economy out
Speaker 1: of this sort of post financial crash condition. Is it
Speaker 1: fair to say that when this is all over, if
Speaker 1: there is this to be over problems that plagued economy
Speaker 1: is like, for example, stagnation in Japan, no inflation in Japan,
Speaker 1: that those won't be the problems that those economies are
Speaker 1: dealing with anymore. A lot of that comes down to demographics,
Speaker 1: I think. In these particularly in the case of Japan,
Speaker 1: which is obviously of the leading country is the one
Speaker 1: that dealt with a declining population first. It is quite
Speaker 1: intriguing Japan does actually seem to have inflation. It's also
Speaker 1: quite intriguing for the first time in a generation. It's
Speaker 1: also quite intriguing that even the new guy coming in
Speaker 1: at the Bank of Japan doesn't seem to be convinced
Speaker 1: that you can actually start tightening yet, that he still
Speaker 1: sees the return of inflation as something fragile. We are
Speaker 1: I suppose you could say Europe really does seem to have.
Speaker 1: Europe had suffered Japanification for over a decade, and Europe
Speaker 1: does seem to have lifted out of it through a
Speaker 1: combination of COVID nineteen and Vladimir Putin. It looks to
Speaker 1: me as though Japan probably has as well, but it's
Speaker 1: not that clear, and it certainly does. Europe has similar
Speaker 1: kinds of issue, gemographic issues coming to those that are
Speaker 1: arrived a while ago in Japan. But there is the
Speaker 1: issue that that shrinking population is less likely to makes
Speaker 1: it more problematic. Not to mention China, well, there is
Speaker 1: that too, Bloomberg Opinions, John Authors. Next, the big consumers
Speaker 1: and the big exporters of oil agreed not to use
Speaker 1: this as a geopolitical weapon, and that's worked very well
Speaker 1: for our exporting nations ever since. And so I think
Speaker 1: what's really striking about what happened over the past year
Speaker 1: is that Putin's actions around energy broke that five decade
Speaker 1: packed between our producers and consumers. David Fickling on some
Speaker 1: of the unintended consequences of Russia's war on Ukraine. This
Speaker 1: is Bloomberg opinion. You're listening to Bloomberg opinion. I'm Vanni Quinn.
Speaker 1: Just more than a year ago Russia invaded Ukraine. That
Speaker 1: said in motion a series of catastrophic events, including a
Speaker 1: shifting of decades long energy relationships. Moscow didn't perhaps bang
Speaker 1: on that accelerating the energy transition, but that's what it
Speaker 1: did at least one silver lining, perhaps in a very
Speaker 1: dark cloud. Numberg Opinions. David Fickling joins, so, David, Russia's
Speaker 1: invasion of Ukraine hastened a global energy transformation. As you
Speaker 1: put it in a recent article, that's really a phenomenon
Speaker 1: of graphics and just information. There was an energy transformation
Speaker 1: in the works. By how much has the war actually
Speaker 1: hastened that transition? I think certainly early on after the invasion,
Speaker 1: there was an expectation that this was going to renew
Speaker 1: an underline the world's addiction to the fields that Russia exports,
Speaker 1: apollowing gaps and to a lesser extent coal. I think
Speaker 1: what we can see now is how much those predictions
Speaker 1: have not been the case. I mean, you know, there
Speaker 1: was a report out just a couple of weeks ago
Speaker 1: via a Rice Stadded Norwegian oil and Gas consultancy. They
Speaker 1: reckon fossil fuel emissions globally will peak by twenty twenty five.
Speaker 1: This is something you no one was predicting a few
Speaker 1: years back. Wind and solar generates a fit of the
Speaker 1: U electricity last year, and the IA. The wreck in
Speaker 1: generation globally from gas and coal will stagnate through twenty
Speaker 1: twenty five, while renewal output goes about nine percent a year.
Speaker 1: All these things are pointing in the same direction. And
Speaker 1: it's actually quite an old lesson of energy geo politics,
Speaker 1: which is that if you threaten other nations and try
Speaker 1: to use energy as a geopolitical weapon, energy consuming nations,
Speaker 1: energy importing nations will find alternatives. All they want is energy,
Speaker 1: and if you tell them that the energy you provided insecure,
Speaker 1: they will look for alternatives. And at the moment, obviously
Speaker 1: there is an energy transition was already in a degree
Speaker 1: of swing, and it's really being sort of fueled by
Speaker 1: what's happened. But David, twenty twenty five is literally two
Speaker 1: years away. Are we saying peak fossil fuel in two years? Yeah?
Speaker 1: I mean that's the foecut from Writer, which is a
Speaker 1: Norwegian consultancy. Their roots are in oil and gas. These
Speaker 1: are not sort of energy transition advocates, But this is
Speaker 1: just looking at the numbers. The driver of that is
Speaker 1: what's happening in the power sector. And of course in
Speaker 1: the power sector, one thing that we saw over the
Speaker 1: past ten years was a sort of frena move situation
Speaker 1: between renewables and gas, where sometimes gas would just support renewables,
Speaker 1: but sometimes gas was sort of especially in Europe, the
Speaker 1: competition for renewables, gas in particular, and especially pipeline gas
Speaker 1: has been the fuel that has suffered from this. Russia's
Speaker 1: vast exports of pipeline gas to Europe have gone away,
Speaker 1: and Europe's looking alternative now a lot of fat. Some
Speaker 1: of that is coal, some of that is ELMG, the
Speaker 1: same gas, but a huge amount of it if you
Speaker 1: look at the Repower EU program that they put through,
Speaker 1: is just advancing that end transition. So David, what happens
Speaker 1: to the OPEC hegemony then, well, I mean, I think
Speaker 1: it's very interesting if you look at the history of
Speaker 1: the OPEC hegemony and how they have maintained their position
Speaker 1: over the past five decades, it's really been by not
Speaker 1: doing what Russia has done over the past year. Obviously,
Speaker 1: famously in nineteen seventy three, OPEC, or rather OAPEC, the
Speaker 1: Arab nations in OPEC threatened to use oil as a
Speaker 1: geopolitical weapon over the October War, and you had the
Speaker 1: crisis that resolved to come out over the seventies, and
Speaker 1: as a result of that, you did see a lot
Speaker 1: of demand destruction. You saw oil consumers switching to more
Speaker 1: efficient cars. Fuel oil generated a quarter of the world's
Speaker 1: electricity in nineteen seventy two. Now it's about two and
Speaker 1: a half percent. That was given up because it was
Speaker 1: seen as too risky. You saw the building of nuclear
Speaker 1: power stations, cold power stations. You saw the first start
Speaker 1: of serious sort of renewable work with Jimmy Carter putting
Speaker 1: solar panels on the white hats and that sort of thing.
Speaker 1: But the pack that came at the end of that
Speaker 1: was really that the big consumers and the big exporters
Speaker 1: of oil agreed not to use this as a geopolitical weapon.
Speaker 1: And that's worked very well for our exporting nations ever since.
Speaker 1: And so I think what's really striking about what happened
Speaker 1: over the past year is that Putin's actions around energy,
Speaker 1: around the invasion of Ukraine sort of broke that five
Speaker 1: decade packed between oil producers and consumers, and that's a
Speaker 1: problem for all oil exporters. Most of the others will
Speaker 1: probably do better, but it's potentially a very severe own
Speaker 1: goal for Russia. Yeah, for sure. Now we do know
Speaker 1: that Russia is still managed two salads oil at a
Speaker 1: discount to shadow markets and so on. We know that
Speaker 1: things like smaller, older vessels are being used to ship
Speaker 1: this oil. They're literally being repainted and sort of vessel
Speaker 1: chop shops, I guess somewhere. And then also the possibility
Speaker 1: of oil spills has grown because of this. So what
Speaker 1: has changed beyond the fact that poorer countries are getting
Speaker 1: cheaper oil and Russia still gets some revenue from oil. Well,
Speaker 1: that's right, And I think you know, one thing that
Speaker 1: we see with this is that no one has a
Speaker 1: vest interest in rocking the boat too much. You know,
Speaker 1: Europe did not want to cut off its imports of
Speaker 1: Russian petroleum, and it was sort of really dragged, kicking
Speaker 1: and screaming into it a lot of the time by
Speaker 1: Russia's own actions. And at this point, you know, we
Speaker 1: see you mentioned developing countries. I mean, I think one
Speaker 1: of the most interesting dynamics we see right now is
Speaker 1: that a lot of this Russian CREWD is getting exported
Speaker 1: to India. India has some of the world's biggest oil
Speaker 1: refineries and a lot of it is being refined in
Speaker 1: India and then exported back to Europe. And Europe's fairly
Speaker 1: happy to turn a blind eye to that because it
Speaker 1: wants cheeko refined products. It wants che gasoline and diesel.
Speaker 1: So there's a gray market that's flourishing there. This has
Speaker 1: always happened. I mean, if you look at Glencore across
Speaker 1: the world's biggest country trader, the real roots of grain
Speaker 1: Core at the time when that business really starts to
Speaker 1: take off was very much in the aftermath of the
Speaker 1: seventies oil crisis, when Mark Rich Glencore was formerly Mark
Speaker 1: Rich and Co. Celebrated commodities trader. I mean, he made
Speaker 1: a lot of money from selling Iranian oil to Israel
Speaker 1: after the Iranian Revolution, which obviously neither Iran nor Israel
Speaker 1: wanted to admit that that was going on. By acting
Speaker 1: as a middleman, Mark Rich is able to do very
Speaker 1: well out of that, and that's the sort of dynamic
Speaker 1: that we will see increasingly now. How much is a
Speaker 1: mild winter in northern countries contributed to this energy transition
Speaker 1: or to this ability to get past this difficult phase.
Speaker 1: And is it significant that this winter was mild or
Speaker 1: would every winter need to be mild in order for
Speaker 1: this to continue? Yeah? I think that has certainly been
Speaker 1: a very lucky adventure arity for Europe that it didn't
Speaker 1: face those big draws on gas. I mean, if you look,
Speaker 1: it's remarkable really that the prices of oil and gas
Speaker 1: are lower now than they were before the war. Now,
Speaker 1: this winter is a crucial one. Next winter will also
Speaker 1: be a crucial one. They're not out of the woods yet,
Speaker 1: but I think beyond that the threat of the weather
Speaker 1: starts to change. Because you know, the great advantage of
Speaker 1: fuel and fossil fields in particular is that they're very flexible.
Speaker 1: There is a global market for it. You can move
Speaker 1: it from one corner of the world to another. You
Speaker 1: can fairly easily increase production from the fields. And obviously,
Speaker 1: you know, people at the IA and an OPEC track
Speaker 1: demand month by month or indeed week by week and
Speaker 1: produces a sort of adjusting their plans according to that.
Speaker 1: So there's that flexibility there. Of course, we just transition
Speaker 1: to renewables. Renewables don't have that. You cannot produce more
Speaker 1: power from a wind farms than its sort of rated capacity,
Speaker 1: so that becomes a problem. And also it takes a
Speaker 1: while to develop those new wind farms. It takes several
Speaker 1: years to plug them in to build transmission lines. However,
Speaker 1: beyond this winter, we really start to see the picture
Speaker 1: changing a lot. You know, Europe is locking down supplies
Speaker 1: of alternative energy that doesn't need Russia. So if we
Speaker 1: have another mild winter that Europe is able to make
Speaker 1: it through this year, then the sort of threat of
Speaker 1: that weapon really goes down substantially. So when you talk
Speaker 1: about renewables, we know that there are certain environmental problems
Speaker 1: with some of them still, right, so things like battery
Speaker 1: power and nuclear power, are they uncategorically better for the environment.
Speaker 1: The big problem we're facing at the moment is that
Speaker 1: there is a fixed amount of the common duck side
Speaker 1: that we're able to pump into the atmosphere, and each
Speaker 1: year we pump about thirty six thirty seven billion tons
Speaker 1: of conduck side into the atmosphere, and we're heading for
Speaker 1: geological limits about how much of that we can take
Speaker 1: before the atmosphere itself starts warming, and that's a battle
Speaker 1: that we have to sort of fight over the next
Speaker 1: thirty years. So certainly you can certainly point to things.
Speaker 1: You can point to gus, there's a lot, there'll be
Speaker 1: a lot of end of life waste from solar panels,
Speaker 1: you know, thirty years from now when we have to
Speaker 1: reconfigure them. But none of those really compared to the
Speaker 1: global scale of the challenge that we face with climate
Speaker 1: change at the moment, so I think they're clearly superior. Yeah,
Speaker 1: I'm also thinking about things like cobalt mining and so on.
Speaker 1: I mean, I think that's an interesting thing. But I
Speaker 1: think if you look at the scale of different commodities,
Speaker 1: one thing to bear in mind is that an unusual
Speaker 1: thing about fuel is that we use it every single year.
Speaker 1: You know, every time you feel a car, you need
Speaker 1: more oil to fuel that car. Every ton of coal,
Speaker 1: you need to burn more coal. Whereas something like cobalt
Speaker 1: is used once. The volumes of global cobalt production are
Speaker 1: in the hundreds of thousands of times, whereas the volumes
Speaker 1: of cross and fuel productions are in the tens of
Speaker 1: billions of tons. So in terms of the effect on
Speaker 1: the planet. There's some pretty awful labor conditions and things
Speaker 1: like cobalt mining. But you know, I don't think any
Speaker 1: of us surreiling for a sort of world of perfection
Speaker 1: where the resources that we're using produce no problems anywhere
Speaker 1: in the world. I think we know we have a
Speaker 1: sort of global challenge that we have to face about
Speaker 1: keeping this vanish the planet where we can live in
Speaker 1: the sort of conditions that we've been used to living.
Speaker 1: Bloomberg Opinions. David Fickling Next. A lot of things will
Speaker 1: get decided at this time, and it will be one
Speaker 1: of the most interesting National People's Congress in recent years.
Speaker 1: Surely ran on the China Communist Party's National People's Congress
Speaker 1: kicking off Sunday. This is Bloomberg Opinion. You're listening to
Speaker 1: Bloomberg Opinion. I'm Vannie Quinn. Markets are eagerly awaiting what
Speaker 1: emerges from the China Communist Parties National People's Congress starting someday.
Speaker 1: Blueberg Opinions. Shuley Ran joins now for a discussion around
Speaker 1: what in particular markets will be watching. Shuley, first of all,
Speaker 1: give us an idea of how many people are involved,
Speaker 1: who are the key characters to watch and what we'll
Speaker 1: get decided at this event. A lot of things will
Speaker 1: get decided at this time, and it will be one
Speaker 1: of the most interesting National People's Congress in recent years
Speaker 1: because at this point we're going to find out who
Speaker 1: the new premiere will be and all the key economic
Speaker 1: posts will be announced, such as the next Central Bank governor,
Speaker 1: the next head of Bank Regulati et c. And also
Speaker 1: very interesting is how China will say its world target,
Speaker 1: because that's going to affect a lot of global asset prices,
Speaker 1: such as commodities. The reason is that you know, in
Speaker 1: the past, President Shifting didn't quite have all the political
Speaker 1: power within him, right like oftentimes China's GDP targets were
Speaker 1: not met, and then he can toss the ball to
Speaker 1: current Premier League Chin and say, okay, they could chandn't
Speaker 1: do the job. But the next premier will probably be
Speaker 1: his men and the heat will probably be the change.
Speaker 1: And that means that whatever the economic target that they're
Speaker 1: study is likely to be met, and that will have
Speaker 1: global financial implications going into commodities and asserprises. Now, officials
Speaker 1: have been debating apparently whether to put that target at
Speaker 1: five percent, which would be faster than last year's three percent.
Speaker 1: Would that suggest though, that Beijing would have to engage
Speaker 1: in more stimulus if it were to be a five
Speaker 1: percent target. I think five percent is durable because China
Speaker 1: has been opened and they are hoping that a consumer
Speaker 1: rebound could get them close to the five percent target.
Speaker 1: But the real debate there has been some talk that that,
Speaker 1: you know, China may even target around five point five percent,
Speaker 1: in which case the government will have to use the
Speaker 1: normal stimulus measures and that could say something about global
Speaker 1: inflation and as serprise, Yeah, and there will be positive
Speaker 1: and negative implications from that. Because local government balance sheets
Speaker 1: are completely ragged after the property crisis and COVID zero,
Speaker 1: what can Beijing ask of them, particularly when we know
Speaker 1: that seventeen out of thirty one are already at one
Speaker 1: hundred and twenty percent debt to GDP, which is far
Speaker 1: higher than Beijing would ever want the local municipality to
Speaker 1: have that at. Yeah, so that's going to be the
Speaker 1: very interesting thing to watch. I think for the Congress,
Speaker 1: people should look at true members. One is the GDP target,
Speaker 1: One is the ciscal deficit, or as a third member
Speaker 1: is how much quota that the central government allows local
Speaker 1: government if you the bomber quota, because as you said,
Speaker 1: the local government they are very very broke. I mean
Speaker 1: last year's COVID control, just finding rapid text and the
Speaker 1: PCRT taxt and loan cost one train area. And also
Speaker 1: like local governments rely on a quarter of their actually
Speaker 1: thirty percent of their income on lend shales, which was
Speaker 1: not happening because the property is flum so really local
Speaker 1: governments have no money. And then if the government is
Speaker 1: still targeting say around five point five percent GDP growth
Speaker 1: or like they do, allowing a lot of bump quota,
Speaker 1: that means China will be even more intended than before.
Speaker 1: Like I mean, China stat to GP ratio is already
Speaker 1: at the round three hundred percent. If we're seeing five
Speaker 1: point five percent world target, that number will have to
Speaker 1: be a lot higher. That's starting three. That's the central
Speaker 1: government stat to GDP ratio. No, it's the whole country.
Speaker 1: So the central government balanship is actually very clean. If
Speaker 1: you like hear about China's debt problem, it usually either
Speaker 1: comes from like real estate factor or from the local government.
Speaker 1: The local government has taken on a lot of that.
Speaker 1: In fact, in China, there is this thing called the
Speaker 1: central government baking clutches the wallets and the local government's
Speaker 1: hold a shovel, and the ones that hold a shovel
Speaker 1: don't have any money, so so they have to keep
Speaker 1: on borrowing. And that's a problem there. Well, CLSA is
Speaker 1: actually saying that regional governments are already spending ten point
Speaker 1: eight percent of the revenue on just interest payments. How
Speaker 1: can that be sustainable? Beijing will have to step in.
Speaker 1: And by Beijing, I don't mean the municipality, I mean
Speaker 1: obviously the central government. Yes, the central government will have
Speaker 1: to stopping. And the central government has been trying to say, okay,
Speaker 1: let's just cut interest rates right and then lower the
Speaker 1: constant borrowing for local government. If the cons oft borrowing
Speaker 1: was the same as before, it would be more than
Speaker 1: ten percent. But the problem is right now, like everyone
Speaker 1: in mainland China, all investors in mainland China, no local
Speaker 1: government has this issue, right, they have become more apprehensive
Speaker 1: in terms of buying local government bars. So just cutting
Speaker 1: interest rate alone it's not going to be enough going forward.
Speaker 1: So at some point, I mean economists have been saying
Speaker 1: for years that the central government has to take confirm
Speaker 1: of the burdens. I mean, that's what the US government
Speaker 1: is doing, right, Like, what would that look like, Shulei,
Speaker 1: if the central government were to take on some of
Speaker 1: the bursion. I mean, it certainly seems like it could
Speaker 1: if it's debt GDP ratio is pretty healthy. Yes, So
Speaker 1: what the central government could do? I mean they could
Speaker 1: take a page out of the US playbook, right, Like,
Speaker 1: basically the Finance ministry is to allow of the bombs
Speaker 1: and then People's Bank up China by a lot of
Speaker 1: the bombs. It's the modern monetary policy. But China has
Speaker 1: not done that at all. So that's one thing they
Speaker 1: could do. Another thing that it's more the Chinese policy
Speaker 1: with Chinese characteristics is those so called policy banks giving
Speaker 1: our loans to local governments. The policy bank, for instance,
Speaker 1: China Development Bank, that's a major policy bank. The other
Speaker 1: risk is that Presidenties and Pink will want to talk
Speaker 1: about common prosperity, which will probably turn off investors around
Speaker 1: the world because common prosperity is not really what they
Speaker 1: want to hear about because that would probably necessarily mean
Speaker 1: more crackdowns. Right, Yeah, So I think what's happening with
Speaker 1: the China market is that you know before like investors
Speaker 1: will say, oh, China is a long term play because
Speaker 1: of its economic prospects. But China is changing, like we
Speaker 1: already know. The Chinese demographics is changing, right, like population
Speaker 1: started to dip, young people now having enough children. And
Speaker 1: then another problem is all the crackdown. So what global
Speaker 1: investors will do. You will start to see a lot
Speaker 1: of so called macro tourists. They come in and out,
Speaker 1: in and out, you know, when there's some reopening, they
Speaker 1: come by very quickly and then they take profit after
Speaker 1: thirty forty percent capitalking And we are already seeing that right.
Speaker 1: And basically China is becoming like Japan in that sense,
Speaker 1: it's becoming rather than a long term play, it's becoming
Speaker 1: a macro tourist play. Wow, will President chess playing worry
Speaker 1: about macro tourism or really accepted? He probably wouldn't like it.
Speaker 1: I mean, no government, one portfolio heart flows in and out,
Speaker 1: he probably wouldn't like it. Yeah. The other thing is
Speaker 1: the developers. Surely it looked like there was going to
Speaker 1: be this massive crackdown. Then he eased off. For perhaps
Speaker 1: it was because COVID zero was just so negative for
Speaker 1: the economy. But what's to become of the property sector.
Speaker 1: Is China already overdeveloped? I think so China has a
Speaker 1: property factor has two stories. If you look at like
Speaker 1: compure one's cities like Shanghai and Staging, those property markets
Speaker 1: have stayed pretty firm because they are the financial and
Speaker 1: commercial hubs where everyone wants to go by. But if
Speaker 1: you look at like the third year of fourth tier cities,
Speaker 1: they weren't being very very much overdeveloped. I mean, China's
Speaker 1: urbanization rate has bought at President shimping. Actually it doesn't
Speaker 1: wound so many people in like a smallst city, right,
Speaker 1: So the property sector's biggest problems are the smallest cities,
Speaker 1: the ones that you have never heard of. They just
Speaker 1: have so much inventory. I don't know what the government
Speaker 1: is going to do about them. And then, of course,
Speaker 1: as the tech crackdown, and the most recent chill that
Speaker 1: went through markets was when Boo fun disappeared, who was
Speaker 1: apparently the banker to know most of the tech companies.
Speaker 1: So then his company Renaissance said that he was helping
Speaker 1: the authorities with investigations. What does that phrase mean, Suli
Speaker 1: helping is better than he is investigated that's for sure.
Speaker 1: So the market speculation is that he hired this act
Speaker 1: their own enterprises banker at a very high salary because
Speaker 1: that guy's expertise and social network in the s banks.
Speaker 1: I think the all month somehow got mare into President
Speaker 1: Shipping and high corruption cracked down the financial services industry
Speaker 1: because you know, like their own bankers, they have a
Speaker 1: lot of power in the economy right in terms of
Speaker 1: who they lend money to. And there are now concerns
Speaker 1: regarding how those tech companies five years ago got so
Speaker 1: much funding in the first place. But it doesn't necessarily
Speaker 1: mean that we'll see a massive sell off from these
Speaker 1: tech companies or that many of the move put out
Speaker 1: of business. This might be just president and been trying
Speaker 1: to ride the ship. Yes, he's just trying to basically
Speaker 1: try to have a really crazy credit cycle. And everybody
Speaker 1: got drunk from ship credit and now we are left
Speaker 1: with bad debt and a bad investment, and President Shiching
Speaker 1: Cain got mad and he's like, I'm going to call
Speaker 1: back some money or punish some people. That's what he's doing.
Speaker 1: It's a new term for season paying as well. Right.
Speaker 1: He recently sort of consolidated powers so he will want
Speaker 1: to appeal to his people. He will want to sort
Speaker 1: of not a tone necessarily for COVID zero, but he
Speaker 1: will want to I'm sure, and I'm speculating, but put
Speaker 1: a very positive outlook out. There is there a chance
Speaker 1: that he might do something for consumption in that case,
Speaker 1: like give out vouchers or some kind of stimulus on
Speaker 1: that front. So far, China has not done that, like
Speaker 1: there was the ninety sixties for his production first and
Speaker 1: then consumption next, And so far the siminius all goes
Speaker 1: to supporting small businesses and enterprises, so that government somehow
Speaker 1: is very reluctant to send consumption checks like what we
Speaker 1: have seen in the US. Somehow President Shouching Pain thinks
Speaker 1: that that will make people become very lazy and not
Speaker 1: want to see jobs. So surely, in terms of the
Speaker 1: geopolitical implications of next week, what kind of president Chi
Speaker 1: and Ping will we see? We've definitely seen amped up
Speaker 1: face offs between the United States and China. Even when
Speaker 1: there were opportunities to sort of back down, it seemed
Speaker 1: like the whole spy balloon thing got out of hand.
Speaker 1: The semiconductor chip four is getting a little bit perhaps
Speaker 1: out of hand, On the one hand, these are not
Speaker 1: relationship ending moves, but on the other hand, they all
Speaker 1: point towards a more aggressive stance between the two countries.
Speaker 1: Will she be a little bit less amenable on the
Speaker 1: stage next week, That's a great question. I mean, like
Speaker 1: at the last congress, that Communist Party Congress in October,
Speaker 1: she thinking was very defiant, you know, talking about a
Speaker 1: separate world order, etc. I think he may have learned
Speaker 1: his lesson because after that there was a huge market staff,
Speaker 1: a lot of following investors basically use in a sense
Speaker 1: that they just exo China almost completely, right. I think
Speaker 1: this time he would be a little bit more tom
Speaker 1: And it's not just foreign invests, I mean Chinese style
Speaker 1: market also did terribly. People just felt like, oh, a
Speaker 1: war is coming. So this time, if he's really focusing
Speaker 1: on economic growth, he will try to come down job
Speaker 1: politic pretension. Well. An added to that is the fact
Speaker 1: that he seems to be getting more and more ingrained
Speaker 1: with Russia again. So for many months he was sort
Speaker 1: of standing on the sidelines. Now it looks like he
Speaker 1: might actually meet with Vladimir Putin or meet with some
Speaker 1: Russian representatives. Do we know if it's in order to
Speaker 1: try to negotiate some kind of peace or some kind
Speaker 1: of armistice, or is it to actually provide Russia with
Speaker 1: some kind of aid. I truly feel that China has
Speaker 1: nothing to gain, nothing economic to gain from this war,
Speaker 1: because Ukraine used to be a major agricultural act order
Speaker 1: into China as well. For some reason, President she wanted
Speaker 1: to be the peacemaker. He wanted to be the elevated
Speaker 1: world leader. But I don't know how that can be achieved.
Speaker 1: So the cheaper oil that China may or may not
Speaker 1: be getting from Russia but probably is that is not
Speaker 1: enough to offset the lack of grains from Ukraine. Is
Speaker 1: that correct? That's correct? Huh. So if you were to guess,
Speaker 1: and I guess most investors are making educated guesses now,
Speaker 1: you would say that that situation is getting incrementally more dangerous.
Speaker 1: I agree. So, I mean I think it can need
Speaker 1: that Russia is obsessed when this war. I mean, what
Speaker 1: can President She do to stop that as obsession? Right? Like,
Speaker 1: there has to be some kind of grateful on a
Speaker 1: military burn. It cannot be still made right at this point,
Speaker 1: But would she go as far as to actually provide weaponry.
Speaker 1: I don't think so. I mean she has been very
Speaker 1: careful over the last year not to pass US section. Yeah,
Speaker 1: what about Taiwan? Very careful? Yeah, exactly what about Taiwan?
Speaker 1: Surely the US again in sort of poking the maneuver,
Speaker 1: and Taiwan has been asking for this. I guess did
Speaker 1: up the number of people that it was sending to
Speaker 1: Taiwan to help train the Taiwanese army. But really the
Speaker 1: number is two hundred. It had been thirty. These are
Speaker 1: probably extraordinarily competent and excellent people, but you know, two
Speaker 1: hundred only go so far. Is the US getting a
Speaker 1: lot more worried about China breaching the Taiwan security wall? Well,
Speaker 1: I think the US is generally worried that China has
Speaker 1: gone through right as a computing suit of power? And
Speaker 1: how one is the proxy? Bloomberg Opinions Shui Ran. That
Speaker 1: does it for this week's opinion. Do feel for you
Speaker 1: to get in touch. I'm at Vonnie Quinn on Twitter
Speaker 1: or email me at v Quinn at Bloomberg dot net.
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