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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hey it's David. Happy weekend.

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Speaker 3: Today we're bringing you a new episode from trump Andomics,

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Speaker 3: Bloomberg podcast focused on the Trump administration's economic policies and plans.

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Speaker 3: It's hosted by Bloomberg's Head of Government and Economics, Stephanie Flanders.

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Speaker 3: This week, Trump Andomics recorded in front of a live

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Speaker 3: audience at Bloomberg invest in Hong Kong, and the discussion

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Speaker 3: centered on the latest round of talks in London between

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Speaker 3: the US and China. That agreement, which was short on detail,

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Speaker 3: diffuse tensions, but left everybody wondering what the heck is

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Speaker 3: going to happen next.

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Speaker 1: China is not easy.

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Speaker 4: We want to open up China.

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Speaker 2: It'll be a great thing for China, great thing for

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Speaker 2: the rest of the world.

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Speaker 4: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,

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Speaker 4: and welcome to Trumpanomics, the podcast that looks the economic

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Speaker 4: world of Donald Trump, how he's already shaped the global

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Speaker 4: economy and what on earth is going to happen next.

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Speaker 4: This week, we're recording Trumpnomics in front of an audience

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Speaker 4: from Bloomberg invest Hong Kong, and we're looking at what

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Speaker 4: trumpanomics means for this part of Asia, notably mainland China

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Speaker 4: and Hong Kong. We've seen the latest round of trade

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Speaker 4: talks in London between the US and China conclude with

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Speaker 4: what our Bloomberg geoeconomics analyst Michael Deng has called a

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Speaker 4: tactical de escalation but not a strategic reset. So we're

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Speaker 4: none the wiser on where tariff rates will end up

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Speaker 4: or how deep the much discussed decoupling of the world's

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Speaker 4: two largest economies will go. But we have plenty to

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Speaker 4: discuss and I'm sure plenty of theories as to what

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Speaker 4: direction we're going about all of that, and maybe also

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Speaker 4: the future of the dollar. Have some great guests to

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Speaker 4: help me talk this through. My colleague Rebecca John Wilkins,

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Speaker 4: Asia Economics and Government reporter for US at Bloomberg, Howhong

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Speaker 4: Managing Partner and chief investment officer at Lotus Asset Management,

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Speaker 4: and Robin Ching, the chief China economist at Morgan Stanley. Rebecca,

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Speaker 4: I'll take advantage of you as the reporter in the room.

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Speaker 4: Take us up to speed on how you're reading that

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Speaker 4: statement we had out of London, and I think we're

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Speaker 4: still expecting a statement from the Chinese about those talks

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Speaker 4: as well.

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Speaker 5: We yes, I mean not a lot of detail in

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Speaker 5: fact from both sides, largely all of the detail coming

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Speaker 5: from the US side here, but more than twenty hours

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Speaker 5: of negotiations over two days, both the sort of heavy

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Speaker 5: hitters from the US and the China side. Essentially, we

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Speaker 5: are back too. I think that point in the Geneva

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Speaker 5: truce where both sides were sitting down saying, yep, maybe

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Speaker 5: something can happen, maybe we can do a deal.

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Speaker 6: We're going back to that pause.

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Speaker 5: But it's important to understand why there was that sort

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Speaker 5: of breakdown in the Geneva truce in the first place,

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Speaker 5: and it really fundamentally is.

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Speaker 6: Over this issue of rare earth.

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Speaker 5: China introduced restrictions on seven different rare earths. These were

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Speaker 5: global restrictions, essentially requiring licenses from companies all over the world,

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Speaker 5: now not just US. But in addition, there was effectively

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Speaker 5: a shadow ban on US requiring these licenses. Now, as

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Speaker 5: part of the Geneva truce, a really critical part of

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Speaker 5: that truce was this agreement that the Chinese side would

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Speaker 5: effectively lift that shadow bank and allow licenses. Now, the

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Speaker 5: whole disagreement, and the reason why we saw this breakdown

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Speaker 5: between the US and China side is precisely what that meant.

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Speaker 5: What does it actually mean for Beijing to expedite these licenses?

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Speaker 5: How quickly is that going to come through? On the

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Speaker 5: China side, of course, we are talking about an entirely

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Speaker 5: new system of export controls over seven different substances. It's

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Speaker 5: a global program, steply complex, forty five days, a review process, etc.

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Speaker 5: And it does seem on the US side that there

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Speaker 5: was an expectation that once that Geneva agreement was made

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Speaker 5: that there would be a much more rapid introduction implementation.

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Speaker 5: So that's really at the crux, it seems of where

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Speaker 5: there was a sort of breakdown in relationships between the

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Speaker 5: US and China. So now it seems it seems I

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Speaker 5: said it very tensatively because we don't have a lot

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Speaker 5: of details, but it seems like there is a quote

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Speaker 5: unquote framework to allow this EXPEDITEI process or allow these

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Speaker 5: rare US to continue being exported into the US. We

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Speaker 5: do not have any details on what that might mean,

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Speaker 5: and both sides still do need to go back to

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Speaker 5: their respective leaders and effectively run this by their bosses.

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Speaker 4: But on the other side, there had been some excitement

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Speaker 4: in the last couple of days when the Commerce Secretary,

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Speaker 4: Howard Litnik actually mentions export controls and was also apparently

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Speaker 4: thinking about some of the US export controls on China,

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Speaker 4: which have been a very sore point for the Chinese.

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Speaker 4: Do we have any clarity on which of those controls

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Speaker 4: were discussed, because there's some are much more important than others.

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Speaker 5: Absolutely, so sort of yes and no. Here we think

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Speaker 5: that some of the immediate retaliatory export controls that the

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Speaker 5: US rolled out when they believe that the Chinese side

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Speaker 5: were not living up to their expectations and the agreement

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Speaker 5: on rare US will be lifted. So that includes restrictions

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Speaker 5: on things like software technology for developing semiconductors, nuclear materials, chemicals,

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Speaker 5: some jet engine parts.

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Speaker 6: So these are the.

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Speaker 5: Latest package of retaliatory measures that we've seen coming out

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Speaker 5: of the US since that breakdown in the Geneva truce.

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Speaker 6: It's unclear if this.

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Speaker 5: Will involve some of these more fundamental issues over export

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Speaker 5: controls over semiconductors. That of course is the big sticking point.

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Speaker 5: These restrictions that were rolled out under Biden and continue

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Speaker 5: to be expanded.

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Speaker 4: Well, Robin seeing you know, of course Rebecca has to

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Speaker 4: stick to absolutely what she knows, but you get to

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Speaker 4: just speculate wildly on the basis of very serious economic analysis.

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Speaker 4: How are you reading where we've got to? And I

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Speaker 4: guess what will you be looking for in terms of

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Speaker 4: the economic impact of these ongoing talks.

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Speaker 1: Thank you, it's definitely I like the word you used, speculating.

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Speaker 1: Given all these flip flop about trade talks so far,

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Speaker 1: the bid ask gap between US and China is still

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Speaker 1: very wide. If you look at the readouts from the

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Speaker 1: US side, they are leaders focusing on trade, deer on

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Speaker 1: upcoming logistics for real Earth, as Rebecca you elaborated, but

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Speaker 1: the Chinese version, Beijing's readout covered a much bigger picture.

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Speaker 1: They want to reset the grand relationship between US and China,

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Speaker 1: covering tech curves, students with geopolitical issues. So apparently Beijing

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Speaker 1: wanted a grand buggaining deal. So I think there is

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Speaker 1: a huge gap between the bid ask and that means

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Speaker 1: the ongoing talks won't be easy. Maybe they can extend

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Speaker 1: this is a trade tariff did on, but what Beijing

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Speaker 1: wanted is beyond tariffs. And Rebecca, you mentioned the real Earth.

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Speaker 1: Now China is using it more like a strategic card.

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Speaker 1: So what do you said. It's like Beijings thinking if

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Speaker 1: you cut our chips, I will cut your magnets. And

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Speaker 1: over the last seven years since the first trade war

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Speaker 1: in twenty eighteen, China has strengthened these dominance in key

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Speaker 1: supply chains like Real Earth. Today they control more than

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Speaker 1: eighty percent of Real Earth refining capacity, more than ninety

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Speaker 1: percent of the magnet production, which is widely used in

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Speaker 1: next generation of attack and supply chain including TV cards, humanoids, robotics,

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Speaker 1: even modern defense system So now China is using that

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Speaker 1: in exchange for potential relaxation of tech curves. That's also

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Speaker 1: part of Beijing's strategic play, sending a message to US allies.

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Speaker 1: It's making them think twice about aling too closely to

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Speaker 1: the tech curbs on China. So I do think all

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Speaker 1: these showed China wanted a grand buggaining deal covering not

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Speaker 1: just the tariff but attack and geopolitical issues. Given that's

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Speaker 1: not going to be easy, you may see continue the

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Speaker 1: uncertainty on trade talks, so our base cases. By end

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Speaker 1: of this year, the US terminal tariff rate on China

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Speaker 1: will probably stay similar to today's level thirty percent forty percent,

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Speaker 1: given all these difficulties and the divergence of Beijing and

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Speaker 1: the Washington redoubts. And that's going to cost the foreign

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Speaker 1: firms margins, cost the Chinese exporters the jobs. So it's

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Speaker 1: still downside the risk to the economy how long.

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Speaker 4: I mean, it feels like the US side had not

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Speaker 4: fully grasped how reliant key parts of the US supply

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Speaker 4: chain was on these rares. So, and I'm kind of

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Speaker 4: reminded of the piction someone had of the ongoing debate,

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Speaker 4: which is the US has decided they absolutely want a

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Speaker 4: divorce from China in ten years time, but live together

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Speaker 4: in the interim for the entire ten years. That is

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Speaker 4: the challenge that you see in some of these talks.

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Speaker 7: Yeah, well, I think it's similar to a couple of

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Speaker 7: fighting through a divorced process, right, so the two parties

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Speaker 7: don't see each other in the future, but then at

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Speaker 7: the same time they still have to live with the

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Speaker 7: consequence and how to divide up the assets. Rebecca and

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Speaker 7: Robin mentioned about the rare earth. It is because the

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Speaker 7: counter offer from the US part is probably not good

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Speaker 7: enough for China, right so I think as a result,

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Speaker 7: even though China has agreed to restart the approval process

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Speaker 7: for rare exports at the Geneva session, the Chinese can

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Speaker 7: always run slower than expected process to approve it. Right,

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Speaker 7: So normally it takes probably one to two weeks to

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Speaker 7: approve to get a permit for exports, and now it

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Speaker 7: takes two months. Right then, that way, on the surface,

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Speaker 7: on paper, China is not violating the agreement, but then

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Speaker 7: at the same time it's still not getting your queen

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Speaker 7: gredient for your GPUs. So I think China can do

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Speaker 7: a lot of these things to slow down the process.

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Speaker 7: And also at the same time, people have to recognize

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Speaker 7: the situation that the American consumers probably can't live for

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Speaker 7: much longer at the higher prospect of much substantial higher invasion.

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Speaker 7: And then at the same same time, because of the

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Speaker 7: process of this trade war and how this trail will started,

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Speaker 7: it actually somehow united the Chinese people together, right, So

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Speaker 7: if you're in mainland Chines, you can you can really

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Speaker 7: feel the atmosphere rooting for presidency and us also rooting

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Speaker 7: for China in this negotiation process.

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Speaker 2: So I think the.

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Speaker 7: Chinese people is very famous for it bitter, right, So

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Speaker 7: in the Chinese culture, it bitter means it can endure

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Speaker 7: substantial hardship for a.

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Speaker 2: Very long time.

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Speaker 7: So as a result, you can see this group of

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Speaker 7: people is ready to fight. But then at the same time,

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Speaker 7: the American consumers really want to get cheap goods. So

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Speaker 7: then that you can see the chinnel can afford to wait.

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Speaker 7: And so I think it's setting a stage for the negotiation.

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Speaker 7: So I think one shouldn't be too surprised that as

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Speaker 7: China Jet one than the Americans would have to give

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Speaker 7: more concession during the process, and then towards the end

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Speaker 7: we probably get a result that is more favorable than

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Speaker 7: expected for the Chinese people.

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Speaker 4: And just to follow up on that, the World Banks

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Speaker 4: obviously brought out some new forecasts this week, and it's

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Speaker 4: cut the growth forecast for seventy percent of the world's economies,

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Speaker 4: almost all of the world's biggest economies. It's halved this

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Speaker 4: year's forecast for the US. The only country that it

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Speaker 4: hasn't cut the forecast for this year next is China.

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Speaker 4: So I guess to come back to you how long

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Speaker 4: at this point, it's China winning the trade war. It's

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Speaker 4: China coming out of this certainly and much better than

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Speaker 4: the US.

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Speaker 7: Yeah, well, I think it's much better than the trailer

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Speaker 7: phase one in twenty eighteen, right, So I think during

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Speaker 7: the current trade war, Chinese more prepared than before and

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Speaker 7: also Chinese ready to use the A thing metric retaliation

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Speaker 7: towards the US counterpart. So I think as a result,

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Speaker 7: on the surface, but the Chinese growth is steady, Chinese

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Speaker 7: exports is steady, and if you look at the Chinese

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Speaker 7: domestic economy, you're seeing two parts of the economy. One

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Speaker 7: part is export manufacturing driven that is doing really well,

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Speaker 7: so even though the exports to the US has been

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Speaker 7: down like one third, but then to the rest of

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Speaker 7: the world is really booming.

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Speaker 2: And then at the same time, if you want to bury.

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Speaker 7: On the Chinese economy, you can look at the consumer sector, right,

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Speaker 7: which is way below expectation and it's still not recovering.

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Speaker 7: And then if you look at housing sector, the housing

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Speaker 7: bubble bursting process is still dragging on. So depending on

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Speaker 7: which part of the Chinese economy you look at, and

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Speaker 7: then you can draw very different conclusions.

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Speaker 4: We have debates in Bloomberg and with the economists as well,

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Speaker 4: because we'll have analysis of the growth trajectory being lower

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Speaker 4: for China and what that means in terms of people's

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Speaker 4: expectations after years of double digit growth. But alongside that

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Speaker 4: sort of pessimism around the Chinese economy, you know, we'll

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Speaker 4: also be reading the latest release of the breakthrough deep

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Speaker 4: Seek or the latest incredible charging technology for electric cars,

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Speaker 4: where China seems to be powering ahead much faster than

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Speaker 4: people expected. So how do you deal with that schizophrenia

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Speaker 4: day to day when people are asking you how's the

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Speaker 4: China economy?

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Speaker 2: Well?

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Speaker 5: I think to Howhong's point. To a certain extent, it

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Speaker 5: really depends where you look. And clearly there are areas

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Speaker 5: where we've had most notably high quality manufacturing, where enormous

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Speaker 5: amounts of investment have been pouring in, and you do

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Speaker 5: see the clear emergence of winners among Chinese firms. Think

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Speaker 5: about electric cars, think about deep seek AI. These are

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Speaker 5: investments that have been going in for the last decade

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Speaker 5: or so. We can think about the China twenty twenty

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Speaker 5: five plans, for example, by and large, aside from semiconductors,

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Speaker 5: China has met all of its aspirations in becoming either

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Speaker 5: a global leader or one of a global leader in

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Speaker 5: those key sectors. So in some ways China is meeting

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Speaker 5: its own tests. But on the other hand, to how

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Speaker 5: Hong's point, there is still this quite painful transformation that

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Speaker 5: is being ushered away from a debt driven property investment

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Speaker 5: led society, and that clearly does still provide drags on

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Speaker 5: the economy. I know, Morgan Stanley that you have your

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Speaker 5: own sort of social metric index of content in China.

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Speaker 6: That's one way to put it. But another way is

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Speaker 6: when you kind of look, for.

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Speaker 5: Example, a private data sets at protests in China. Now

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Speaker 5: they're relatively small scale, we're talking about in the hundreds,

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Speaker 5: but by and large we have seen those continue to climb,

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Speaker 5: particularly over the course of this year. They tend to

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Speaker 5: be very economic focus. These are economic issues. They're rarely political.

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Speaker 5: In fact, actually they're off and around housing issues. They're

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Speaker 5: often around unpaid wages. So to that point of knowing

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Speaker 5: sort of where to look is you can see these

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Speaker 5: pockets of real tension, particularly at the local government level

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Speaker 5: where finances are really strained. And then over when we

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Speaker 5: think about the consumer mood, of course, most consumer indexes

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Speaker 5: will still show that we are pretty far from where

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Speaker 5: we were pre pandemic as well, So overall that mood

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Speaker 5: is different. But to how Hung's point, I will say

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Speaker 5: there has been a remarkable transformation in how this is

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Speaker 5: all viewed as a result of the trade war. When

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Speaker 5: we think about last year, that all of these stories

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Speaker 5: about deflation, Robin extensively about concerns about the property market

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Speaker 5: when we're going to see a bottom and really the

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Speaker 5: cost for ordinary people of Presidency Edimping's push to transform

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Speaker 5: the economy.

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Speaker 6: Was this really going to pay off the end of

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Speaker 6: the boom years. So with these sort of.

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Speaker 5: Quite existential questions we are asking, now we are seeing

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Speaker 5: this extraordinary support from many parts of the economy for

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Speaker 5: presidency backing China standing up and this sort of resurgence

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Speaker 5: of sort of a nationalism and a nationalist feeling and

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Speaker 5: patriotic feeling as well. So you know, in some ways

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Speaker 5: that's nothing to do with the Chinese economy. We're talking

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Speaker 5: about the sort of enemy that the US has created

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Speaker 5: for itself that has changed the nowational mood in China.

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Speaker 4: I think, well, Robin, I think we've established that Rebecca

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Speaker 4: is a very careful reader of.

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Speaker 2: Your of your work.

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Speaker 4: But I'm interested in how you see that, and I

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Speaker 4: think also we see maybe a change in the mood

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Speaker 4: supporting the leadership. But have we also seen a change

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Speaker 4: of direction from the leadership in terms of its commitment

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Speaker 4: to rebalancing the economy or is that just wishful thinking

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Speaker 4: on the part of the Americans, you know, a commitment

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Speaker 4: from the top to a more consumption led economy, which

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Speaker 4: is of course what economists have been lecturing the Chinese

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Speaker 4: about for many years.

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Speaker 1: Well, it's definitely I think Rebecca you are bought on

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Speaker 1: about the change.

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Speaker 4: Of course, because she's been reading your.

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Speaker 1: I have been right and the decline of readership readership

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Speaker 1: of mind defletion.

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Speaker 2: Report last year.

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Speaker 1: What's are dominated by deflation, housing adjustment or a capacity

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Speaker 1: Then suddenly, at Rebecca you mentioned and there is a

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Speaker 1: changing narrative and how you also briefly touched it. At

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Speaker 1: least right now, despite China is nothing a sustainable recovery path.

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Speaker 1: Yet at least there is a biification of the narrative,

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Speaker 1: a tale of two economies. You have a very dynamic

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Speaker 1: tach economy. Every other week you heard the new technology progress,

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Speaker 1: either AI model or next generation of batteries or self

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Speaker 1: driving cars or even recently China's healthcare bot tech had

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Speaker 1: its own deepsick moment, able to make fast follow drugs

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Speaker 1: at competitive quality at a fraction of the US cost.

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Speaker 1: So all of these are showing a very dynamic tach

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Speaker 1: economy that helped Hong Kong. I think in your Hong

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Speaker 1: Kong conference today is becoming bigger partially because Hong Kong

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Speaker 1: is back with the ecosystem. Private acity investor in tech

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Speaker 1: using Hong Kong as acts the channel creating new money.

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Speaker 1: That animal spirity is largely back. But once you take

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Speaker 1: off or augmented reality glass, you look at conventional consumers

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Speaker 1: that are mentioned or housing construction, they are pretty much

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Speaker 1: stuck with deflation. And as the economists, we have to

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Speaker 1: explain why these sifications happened. I think fundamentally China has

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Speaker 1: not shifted from a supply centric business model policy approach

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Speaker 1: towards consumption centric.

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Speaker 2: They did some.

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Speaker 1: Baby steps social welfare or consumer trading, but these are

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Speaker 1: too little. Fundamentally, the local government incentives, the GDPKPI, the

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Speaker 1: government revenue largely relying on AT which is linked to production.

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Speaker 1: All of these are showing past dependency. They are still

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Speaker 1: pretty much in supply centric mentality. We proposed they should

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Speaker 1: upgrade their Made in China twenty twenty five to something

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Speaker 1: called and Open China Market tunicity, focusing on boosting domestic

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Speaker 1: demand and consumption in a sustainable way, providing deeper social

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Speaker 1: safety net that social welfare household centric reform to unlock

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Speaker 1: China's consumption potential. However, according to Bloomberg, they are probably

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Speaker 1: still debating on doubling down on tech and the supply

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Speaker 1: side in the next five year plan. So I do

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Speaker 1: think that's the reason of the bification of the economy

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Speaker 1: a tale of two economies. Unfortunately, for a bigger part

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Speaker 1: of the macroeconomy, they're still stuck with deflation.

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Speaker 2: So volume growth is fine.

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Speaker 1: Stephanie mentioned many people maintained or upgraded their China forecast

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Speaker 1: to four and a half percent or higher for this year,

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Speaker 1: but that's for real GDP, that's for volume. Once you

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Speaker 1: look at value or nominal side, we think China's normal

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Speaker 1: GDP growth were stay at the subdued level of three

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Speaker 1: and a half percent throughout maybe the end of next year,

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Speaker 1: given the deflation problem and the recently example of they

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Speaker 1: did some interesting introduction of self driving cars, but meanwhile

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Speaker 1: you see all these cut through the pricing war during

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Speaker 1: IV among all these TV cut firms. So that's a

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Speaker 1: perfect example of the supply versus a demand. That imbalance

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Speaker 1: is quite persistent in China.

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Speaker 4: And just to unpack a little bit for people listening

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Speaker 4: who are not always listening to the sort of economist

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Speaker 4: debates about this, when you talk about the rebalancing and

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Speaker 4: when you talk about still focus on supply and some

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Speaker 4: of the incentives. I mean, it's an economy that is

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Speaker 4: geared around an extraordinarily high level of investment over many,

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Speaker 4: many years, and much lower consumption than you see in

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Speaker 4: most economies, certainly advanced economies, but also economies of a

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Speaker 4: similar income. And what you were saying, Robin, is that

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Speaker 4: the local government officials are incentivized still around just pushing

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Speaker 4: out output rather than getting income to households or providing

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Speaker 4: welfare services. How and then when we discussed this before

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Speaker 4: the session, you made the point that this was about

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Speaker 4: not just rebalancing the Chinese economy but also the US

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Speaker 4: econom I'm not sure that's the way the US sees that,

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Speaker 4: but just explain that briefly to us.

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Speaker 7: Yeah, Well, I think to rebalance both sides has to

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Speaker 7: work together. I think the Chinese consume too little invests

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Speaker 7: too much, and then the US is the reverse. If

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Speaker 7: you want to rebalance this structure, the US has to

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Speaker 7: produce more, consume less, and then vice versa for the Chinese.

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Speaker 7: I think for China is a monumental task in the

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Speaker 7: sense that if you look at the domestic economy just now,

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Speaker 7: we've mentioned about the housing bubble bursting process. Now in

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Speaker 7: this process, indebted department of the Chinese economy is really

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Speaker 7: the household. The household is borrowed up to their eyeballs.

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Speaker 7: The non financial that the GDP ratio is about three

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Speaker 7: hundred percent in China. So when you have this department

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Speaker 7: that is boring heavily to buy up properties, and then

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Speaker 7: now in a property priced inflationary process, it's very difficult

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Speaker 7: for this department to deleverage because this department cannot print money.

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Speaker 7: But then, on the other hand, the US is a

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Speaker 7: different situation where you have the public department that is

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Speaker 7: boring up all of that, and then the US households

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Speaker 7: deservice racial is it's still at odd time low. In

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Speaker 7: this kind of economic structure, then you'll see an inflationary process.

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Speaker 7: The US government can't keep its budget deficit down, but

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Speaker 7: then at the same time you're facing higher and high

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Speaker 7: inflationary pressure.

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Speaker 2: And then in Chinese the opposite.

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Speaker 7: If you really want to rebalance, it's a global rebalance process.

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Speaker 2: It's not just about China.

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Speaker 7: If you look at China, so the way we manage

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Speaker 7: our economy, right, so we try to rebalance it for

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Speaker 7: like decades I remember still since two thousand and seven, right,

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Speaker 7: so when the ex government was in charge, there was

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Speaker 7: this saying about the Chinese managing Chinese economy. It's about

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Speaker 7: it's riding a bicycle, right, so if you're too fast

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Speaker 7: or too slow, it will tap over. I think you know,

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Speaker 7: if you look back now, almost twenty years later, we

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Speaker 7: look at the Chinese economy, it's actually more investment driven

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Speaker 7: than before and less consumption, so that it's telling you

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Speaker 7: that whatever happened in the past two decades hasn't been successful.

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Speaker 7: We have to change the way of thinking for China.

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Speaker 7: Just rebalancing on its own it hasn't been successful. I

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Speaker 7: think it's a global rebalancing process.

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Speaker 4: I want to just say something a bit about not

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Speaker 4: just the rebalancing of the individual US and China economies,

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Speaker 4: but I would say globally, there's a sort of rebalancing

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Speaker 4: in markets that's happening. We're seeing the dollar four relative

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Speaker 4: to every currency, but certainly many around here, and we

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Speaker 4: are seeing a reallocation of investment. People are still heavily

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Speaker 4: invested in the US, it's hard to avoid, but certainly

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Speaker 4: at the margin we're seeing money flow, particularly perhaps into

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Speaker 4: this region. Rebecca, just tell us a little bit about

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Speaker 4: how you see the impact for Hong Kong as a

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Speaker 4: financial system, for the relative role of the dollar here

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Speaker 4: and investment sentiment in this.

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Speaker 6: Part of the world, not just in Hong Kong, but

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Speaker 6: in Asia.

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Speaker 5: This broader question of the role of the US dollar

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Speaker 5: going forward. There'll be people in this who over the

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Speaker 5: last year, whether it was trading the Taiwan currency, whether

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Speaker 5: it was trading the Japanese carry trade, who have been

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Speaker 5: on the forefront of feeling this sort of this shift

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Speaker 5: in the tectonic place. Essentially, there was a big debate

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Speaker 5: over whether or not actually we were seeing some kind

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Speaker 5: of reversal of the Asian financial crisis, essentially declining confidence

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Speaker 5: in the dollar, strengthening local currencies, and whether or not

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Speaker 5: that would essentially mean a massive return of capital back

440
00:24:29,040 --> 00:24:33,080
Speaker 5: home now that sort of phenomena hasn't really started already

441
00:24:33,160 --> 00:24:37,040
Speaker 5: yet in massive numbers, but certainly we are already starting

442
00:24:37,080 --> 00:24:37,720
Speaker 5: to see.

443
00:24:37,480 --> 00:24:38,359
Speaker 6: That playing out.

444
00:24:38,800 --> 00:24:42,240
Speaker 5: And I think for many Asian countries broadly speaking, economically,

445
00:24:42,240 --> 00:24:45,399
Speaker 5: there's this question of how that impacts their export driven

446
00:24:45,400 --> 00:24:50,040
Speaker 5: economies that have, of course so relied on that currency disparity.

447
00:24:50,440 --> 00:24:53,560
Speaker 5: But also from a sort of financial markets point of view,

448
00:24:53,560 --> 00:24:56,760
Speaker 5: there will be this question of how deep and liquid

449
00:24:56,920 --> 00:25:01,080
Speaker 5: home markets are and their capacity to absorb that home

450
00:25:01,160 --> 00:25:05,320
Speaker 5: currency and whether if they are sort of I suppose mature.

451
00:25:05,040 --> 00:25:07,640
Speaker 6: Enough to start to start adapting that back. But by

452
00:25:07,680 --> 00:25:08,600
Speaker 6: and large.

453
00:25:08,440 --> 00:25:11,120
Speaker 5: There is this potential good news story that we will

454
00:25:11,160 --> 00:25:15,800
Speaker 5: see the sort of reinvestment back into home currencies. I

455
00:25:15,880 --> 00:25:18,040
Speaker 5: took a trip to the US not so long ago.

456
00:25:18,119 --> 00:25:20,960
Speaker 5: I spoke to a lot of US front managers, particularly

457
00:25:21,000 --> 00:25:22,359
Speaker 5: outside of New.

458
00:25:22,280 --> 00:25:24,520
Speaker 6: York and places in New England and so on.

459
00:25:24,600 --> 00:25:27,160
Speaker 5: And what struck me that was sort of really remarkable

460
00:25:27,200 --> 00:25:30,480
Speaker 5: is anecdotally, although a lot of them are persisting with

461
00:25:30,640 --> 00:25:34,399
Speaker 5: their various macro and global trades and bullish on the US,

462
00:25:34,440 --> 00:25:37,480
Speaker 5: they still believe in the US exceptionalism story. By and large,

463
00:25:37,520 --> 00:25:39,879
Speaker 5: almost every single one of them told me that when

464
00:25:39,920 --> 00:25:42,480
Speaker 5: it comes to their personal investments, they were all worried

465
00:25:42,480 --> 00:25:45,960
Speaker 5: about overexposure to the dollar. They're all worried about thinking

466
00:25:45,960 --> 00:25:48,800
Speaker 5: about where else I diversify, What other currencies?

467
00:25:48,840 --> 00:25:49,680
Speaker 6: Do we go to gold?

468
00:25:49,720 --> 00:25:51,919
Speaker 5: Even though it's too late, except I just heard this

469
00:25:51,960 --> 00:25:54,159
Speaker 5: conversation come up again and again and again. It's so

470
00:25:54,280 --> 00:25:57,480
Speaker 5: interesting taking that into the Asian context and how that

471
00:25:57,600 --> 00:26:01,760
Speaker 5: resonates with traders and investors here as well.

472
00:26:01,840 --> 00:26:04,159
Speaker 4: Robert, you mentioned the role of Hong Kong, but do

473
00:26:04,160 --> 00:26:08,320
Speaker 4: you also see just a long term shift, this reversal

474
00:26:08,359 --> 00:26:11,240
Speaker 4: of the Asia financial crisis, if you like, for this region.

475
00:26:11,640 --> 00:26:15,280
Speaker 1: Hong Kong benefited from three wives of inflows. You mentioned

476
00:26:15,280 --> 00:26:19,480
Speaker 1: about the capital flows first wave. Since September last year,

477
00:26:20,520 --> 00:26:24,760
Speaker 1: policy makers in Beijing believe stock market is a very

478
00:26:24,760 --> 00:26:29,200
Speaker 1: important confidence vote, confidence progracy, so in terms of national

479
00:26:29,200 --> 00:26:34,080
Speaker 1: team or reserve management or China's sovereign worth education. Now

480
00:26:34,119 --> 00:26:36,879
Speaker 1: they value Hong Kong more than ever before that was

481
00:26:36,920 --> 00:26:41,080
Speaker 1: the stage one more driven by government. Then after this

482
00:26:41,440 --> 00:26:45,200
Speaker 1: earlier this year deepsick moment, people realized that okay, China

483
00:26:45,280 --> 00:26:49,359
Speaker 1: still has these innovation capabilities, and due to Lai issues,

484
00:26:49,440 --> 00:26:52,600
Speaker 1: a lot of big tech laims are listed in Hong Kong,

485
00:26:52,840 --> 00:26:55,760
Speaker 1: not in on shore China. So Hong Kong benefited from

486
00:26:55,800 --> 00:26:59,720
Speaker 1: that narrative change. Okay, China innovation and animal spirit in

487
00:26:59,760 --> 00:27:04,439
Speaker 1: pact is back recently the April second deliberation day, and

488
00:27:04,880 --> 00:27:08,720
Speaker 1: as you've definitely and rebeccommentioned, people are debating on the

489
00:27:09,320 --> 00:27:15,399
Speaker 1: falling of US exceptionalism, weakening US dollar, and the third

490
00:27:15,440 --> 00:27:19,080
Speaker 1: wave of influence is not from global money yet, is

491
00:27:19,200 --> 00:27:25,919
Speaker 1: from Chinese offshore money. High networks individuals or exporters who

492
00:27:26,080 --> 00:27:28,960
Speaker 1: parked too much of their money in US asss in

493
00:27:29,000 --> 00:27:32,240
Speaker 1: the last five years. They were too exposed to US

494
00:27:32,280 --> 00:27:35,919
Speaker 1: dollar assets. Now they are participating in things like Hong

495
00:27:36,000 --> 00:27:39,480
Speaker 1: Kong asses or Hong Kong ipo so called the high quality.

496
00:27:39,760 --> 00:27:42,919
Speaker 1: They may be assets listed in Hong Kong. So Hong

497
00:27:43,000 --> 00:27:46,160
Speaker 1: Kong benefited from that. But the final wave, the most

498
00:27:46,240 --> 00:27:50,240
Speaker 1: important one, has not come yet global money allocating to

499
00:27:50,480 --> 00:27:54,240
Speaker 1: China and Hong Kong. Well, China is participating in this

500
00:27:54,520 --> 00:27:57,560
Speaker 1: debate on week dollar. Maybe China can benefit from that,

501
00:27:57,760 --> 00:28:00,479
Speaker 1: but I don't think they are fully red need to

502
00:28:00,640 --> 00:28:04,360
Speaker 1: see this moment. They need to improve polery transparency, they

503
00:28:04,359 --> 00:28:08,280
Speaker 1: need to refleate and the rebalance, try to get rid

504
00:28:08,359 --> 00:28:12,080
Speaker 1: of the definition problem. If Beijing can deliver this, I

505
00:28:12,119 --> 00:28:14,879
Speaker 1: think they will benefit much more and the fully feeling

506
00:28:15,280 --> 00:28:19,639
Speaker 1: this opportunity of so called diversification away from US dollar.

507
00:28:19,880 --> 00:28:23,480
Speaker 1: But sofa Hong Kong money is mostly Chinese money, either

508
00:28:23,520 --> 00:28:27,360
Speaker 1: from Beijing or from offshore Chinese. That's the way they

509
00:28:27,400 --> 00:28:28,280
Speaker 1: benefited the sofa.

510
00:28:29,040 --> 00:28:31,080
Speaker 4: How long we'll have the last word? Do you do

511
00:28:31,119 --> 00:28:32,920
Speaker 4: you agree with Robin that we're just at the first

512
00:28:33,000 --> 00:28:35,080
Speaker 4: stage of a process. That's quite a few steps to

513
00:28:35,119 --> 00:28:37,239
Speaker 4: go if we're going to have this shift in the

514
00:28:37,280 --> 00:28:39,880
Speaker 4: center of financial gravity in this direction.

515
00:28:40,400 --> 00:28:42,440
Speaker 7: Yeah, well, I think more likely than not, you know,

516
00:28:42,520 --> 00:28:46,800
Speaker 7: the US dollar will continue its depreciation process.

517
00:28:45,960 --> 00:28:47,400
Speaker 2: Over the next couple of years.

518
00:28:47,640 --> 00:28:50,040
Speaker 7: I think a very strong US dollars has been a

519
00:28:50,040 --> 00:28:53,320
Speaker 7: symptom of the global imbalance. And also the Chinese currency

520
00:28:53,360 --> 00:28:56,080
Speaker 7: is way too weak, and I think one of the

521
00:28:56,120 --> 00:28:59,400
Speaker 7: reasons why the Chinese currency was so weak was because

522
00:29:00,320 --> 00:29:04,120
Speaker 7: we have to maintain the edge in our export sector.

523
00:29:04,440 --> 00:29:06,600
Speaker 7: And then at the same time, I think the Chinese

524
00:29:07,080 --> 00:29:10,840
Speaker 7: currency rate is more driven by capital flow rather than

525
00:29:11,040 --> 00:29:13,160
Speaker 7: trade flows. So I think as a result, in the

526
00:29:13,200 --> 00:29:15,479
Speaker 7: past couple of years, usually seeing the capital keep flowing

527
00:29:15,920 --> 00:29:18,760
Speaker 7: out of China and going into the US capital market.

528
00:29:19,040 --> 00:29:22,560
Speaker 7: And also for the US dollars that the Chinese export

529
00:29:22,720 --> 00:29:25,760
Speaker 7: have been receiving, they have been keeping it overseas to

530
00:29:26,320 --> 00:29:28,920
Speaker 7: be reinvested in the US market.

531
00:29:29,360 --> 00:29:29,960
Speaker 2: So I think as a.

532
00:29:29,960 --> 00:29:31,680
Speaker 7: Result, you can see, you know, in the past couple

533
00:29:31,760 --> 00:29:34,120
Speaker 7: of years, the Chinese currentcy has been weak. You know,

534
00:29:34,160 --> 00:29:37,480
Speaker 7: it's because of the direction of the capital flow has

535
00:29:37,600 --> 00:29:40,560
Speaker 7: not been favorable to the Chinese currency. But now the

536
00:29:40,600 --> 00:29:43,760
Speaker 7: table has turned. I think the narrative of the Trump

537
00:29:43,760 --> 00:29:47,600
Speaker 7: administration is making it itself hostile not only to the

538
00:29:47,680 --> 00:29:51,240
Speaker 7: Chinese economy, but also to the global economy, actually hitting

539
00:29:51,280 --> 00:29:53,640
Speaker 7: hard on the airlines as well. All right, So I

540
00:29:53,640 --> 00:29:56,760
Speaker 7: think in this process, and also after the Russian and

541
00:29:56,840 --> 00:29:59,960
Speaker 7: the Ukraine War, I think people start to realize that,

542
00:30:00,120 --> 00:30:02,880
Speaker 7: you know, the US dollar holding may not be as

543
00:30:02,920 --> 00:30:06,920
Speaker 7: safe as they once were, and now they have to

544
00:30:06,960 --> 00:30:09,160
Speaker 7: thing for themselves. So I think as a result, you know,

545
00:30:09,240 --> 00:30:12,680
Speaker 7: we're seeing money being reallocating out of the US market.

546
00:30:13,080 --> 00:30:14,520
Speaker 2: Otherwise how could you explain.

547
00:30:14,640 --> 00:30:17,440
Speaker 7: Right, So, after a very significant risk of event on

548
00:30:17,480 --> 00:30:22,120
Speaker 7: the Liberation Day, the US dollar continue to depreciate, and

549
00:30:22,200 --> 00:30:25,320
Speaker 7: I think the the process could accelerate from here.

550
00:30:26,120 --> 00:30:29,600
Speaker 4: Well, this is making me feel a bit old talking

551
00:30:29,640 --> 00:30:32,760
Speaker 4: about the full circle from the age of financial crisis,

552
00:30:32,800 --> 00:30:35,360
Speaker 4: because my first ever trip to Hong Kong was in

553
00:30:35,400 --> 00:30:39,280
Speaker 4: the autumn of nineteen ninety seven with the US Treasury.

554
00:30:39,360 --> 00:30:41,360
Speaker 4: I just joined the US Treasury. It was the World

555
00:30:41,360 --> 00:30:43,640
Speaker 4: Bank meetings, and we were just getting to grips with

556
00:30:44,280 --> 00:30:46,840
Speaker 4: at that point the crisis in Thailand. But of course

557
00:30:46,880 --> 00:30:50,280
Speaker 4: it became the financial crisis. I'm not sure we're full

558
00:30:50,320 --> 00:30:52,640
Speaker 4: circle stance then, but we've certainly come a very long way,

559
00:30:52,680 --> 00:30:54,440
Speaker 4: and in this region probably.

560
00:30:54,560 --> 00:30:55,200
Speaker 2: Most of all.

561
00:31:02,000 --> 00:31:05,160
Speaker 4: Thank you very much for listening to Trumponomics from Bloomberg.

562
00:31:05,200 --> 00:31:07,760
Speaker 4: It was hosted by me Stephanie Flanders. I was joined

563
00:31:07,760 --> 00:31:12,040
Speaker 4: by Bloomberg's Rebecca Chong Wilkins, Morgan Stanley's Robin Singh and

564
00:31:12,200 --> 00:31:15,520
Speaker 4: lotuses how Long, with special thanks to the team at

565
00:31:15,560 --> 00:31:18,280
Speaker 4: Bloomberg Hong Kong invest Thanks very much,