Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hey it's David. Happy weekend.
Speaker 3: Today we're bringing you a new episode from trump Andomics,
Speaker 3: Bloomberg podcast focused on the Trump administration's economic policies and plans.
Speaker 3: It's hosted by Bloomberg's Head of Government and Economics, Stephanie Flanders.
Speaker 3: This week, Trump Andomics recorded in front of a live
Speaker 3: audience at Bloomberg invest in Hong Kong, and the discussion
Speaker 3: centered on the latest round of talks in London between
Speaker 3: the US and China. That agreement, which was short on detail,
Speaker 3: diffuse tensions, but left everybody wondering what the heck is
Speaker 3: going to happen next.
Speaker 1: China is not easy.
Speaker 4: We want to open up China.
Speaker 2: It'll be a great thing for China, great thing for
Speaker 2: the rest of the world.
Speaker 4: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
Speaker 4: and welcome to Trumpanomics, the podcast that looks the economic
Speaker 4: world of Donald Trump, how he's already shaped the global
Speaker 4: economy and what on earth is going to happen next.
Speaker 4: This week, we're recording Trumpnomics in front of an audience
Speaker 4: from Bloomberg invest Hong Kong, and we're looking at what
Speaker 4: trumpanomics means for this part of Asia, notably mainland China
Speaker 4: and Hong Kong. We've seen the latest round of trade
Speaker 4: talks in London between the US and China conclude with
Speaker 4: what our Bloomberg geoeconomics analyst Michael Deng has called a
Speaker 4: tactical de escalation but not a strategic reset. So we're
Speaker 4: none the wiser on where tariff rates will end up
Speaker 4: or how deep the much discussed decoupling of the world's
Speaker 4: two largest economies will go. But we have plenty to
Speaker 4: discuss and I'm sure plenty of theories as to what
Speaker 4: direction we're going about all of that, and maybe also
Speaker 4: the future of the dollar. Have some great guests to
Speaker 4: help me talk this through. My colleague Rebecca John Wilkins,
Speaker 4: Asia Economics and Government reporter for US at Bloomberg, Howhong
Speaker 4: Managing Partner and chief investment officer at Lotus Asset Management,
Speaker 4: and Robin Ching, the chief China economist at Morgan Stanley. Rebecca,
Speaker 4: I'll take advantage of you as the reporter in the room.
Speaker 4: Take us up to speed on how you're reading that
Speaker 4: statement we had out of London, and I think we're
Speaker 4: still expecting a statement from the Chinese about those talks
Speaker 4: as well.
Speaker 5: We yes, I mean not a lot of detail in
Speaker 5: fact from both sides, largely all of the detail coming
Speaker 5: from the US side here, but more than twenty hours
Speaker 5: of negotiations over two days, both the sort of heavy
Speaker 5: hitters from the US and the China side. Essentially, we
Speaker 5: are back too. I think that point in the Geneva
Speaker 5: truce where both sides were sitting down saying, yep, maybe
Speaker 5: something can happen, maybe we can do a deal.
Speaker 6: We're going back to that pause.
Speaker 5: But it's important to understand why there was that sort
Speaker 5: of breakdown in the Geneva truce in the first place,
Speaker 5: and it really fundamentally is.
Speaker 6: Over this issue of rare earth.
Speaker 5: China introduced restrictions on seven different rare earths. These were
Speaker 5: global restrictions, essentially requiring licenses from companies all over the world,
Speaker 5: now not just US. But in addition, there was effectively
Speaker 5: a shadow ban on US requiring these licenses. Now, as
Speaker 5: part of the Geneva truce, a really critical part of
Speaker 5: that truce was this agreement that the Chinese side would
Speaker 5: effectively lift that shadow bank and allow licenses. Now, the
Speaker 5: whole disagreement, and the reason why we saw this breakdown
Speaker 5: between the US and China side is precisely what that meant.
Speaker 5: What does it actually mean for Beijing to expedite these licenses?
Speaker 5: How quickly is that going to come through? On the
Speaker 5: China side, of course, we are talking about an entirely
Speaker 5: new system of export controls over seven different substances. It's
Speaker 5: a global program, steply complex, forty five days, a review process, etc.
Speaker 5: And it does seem on the US side that there
Speaker 5: was an expectation that once that Geneva agreement was made
Speaker 5: that there would be a much more rapid introduction implementation.
Speaker 5: So that's really at the crux, it seems of where
Speaker 5: there was a sort of breakdown in relationships between the
Speaker 5: US and China. So now it seems it seems I
Speaker 5: said it very tensatively because we don't have a lot
Speaker 5: of details, but it seems like there is a quote
Speaker 5: unquote framework to allow this EXPEDITEI process or allow these
Speaker 5: rare US to continue being exported into the US. We
Speaker 5: do not have any details on what that might mean,
Speaker 5: and both sides still do need to go back to
Speaker 5: their respective leaders and effectively run this by their bosses.
Speaker 4: But on the other side, there had been some excitement
Speaker 4: in the last couple of days when the Commerce Secretary,
Speaker 4: Howard Litnik actually mentions export controls and was also apparently
Speaker 4: thinking about some of the US export controls on China,
Speaker 4: which have been a very sore point for the Chinese.
Speaker 4: Do we have any clarity on which of those controls
Speaker 4: were discussed, because there's some are much more important than others.
Speaker 5: Absolutely, so sort of yes and no. Here we think
Speaker 5: that some of the immediate retaliatory export controls that the
Speaker 5: US rolled out when they believe that the Chinese side
Speaker 5: were not living up to their expectations and the agreement
Speaker 5: on rare US will be lifted. So that includes restrictions
Speaker 5: on things like software technology for developing semiconductors, nuclear materials, chemicals,
Speaker 5: some jet engine parts.
Speaker 6: So these are the.
Speaker 5: Latest package of retaliatory measures that we've seen coming out
Speaker 5: of the US since that breakdown in the Geneva truce.
Speaker 6: It's unclear if this.
Speaker 5: Will involve some of these more fundamental issues over export
Speaker 5: controls over semiconductors. That of course is the big sticking point.
Speaker 5: These restrictions that were rolled out under Biden and continue
Speaker 5: to be expanded.
Speaker 4: Well, Robin seeing you know, of course Rebecca has to
Speaker 4: stick to absolutely what she knows, but you get to
Speaker 4: just speculate wildly on the basis of very serious economic analysis.
Speaker 4: How are you reading where we've got to? And I
Speaker 4: guess what will you be looking for in terms of
Speaker 4: the economic impact of these ongoing talks.
Speaker 1: Thank you, it's definitely I like the word you used, speculating.
Speaker 1: Given all these flip flop about trade talks so far,
Speaker 1: the bid ask gap between US and China is still
Speaker 1: very wide. If you look at the readouts from the
Speaker 1: US side, they are leaders focusing on trade, deer on
Speaker 1: upcoming logistics for real Earth, as Rebecca you elaborated, but
Speaker 1: the Chinese version, Beijing's readout covered a much bigger picture.
Speaker 1: They want to reset the grand relationship between US and China,
Speaker 1: covering tech curves, students with geopolitical issues. So apparently Beijing
Speaker 1: wanted a grand buggaining deal. So I think there is
Speaker 1: a huge gap between the bid ask and that means
Speaker 1: the ongoing talks won't be easy. Maybe they can extend
Speaker 1: this is a trade tariff did on, but what Beijing
Speaker 1: wanted is beyond tariffs. And Rebecca, you mentioned the real Earth.
Speaker 1: Now China is using it more like a strategic card.
Speaker 1: So what do you said. It's like Beijings thinking if
Speaker 1: you cut our chips, I will cut your magnets. And
Speaker 1: over the last seven years since the first trade war
Speaker 1: in twenty eighteen, China has strengthened these dominance in key
Speaker 1: supply chains like Real Earth. Today they control more than
Speaker 1: eighty percent of Real Earth refining capacity, more than ninety
Speaker 1: percent of the magnet production, which is widely used in
Speaker 1: next generation of attack and supply chain including TV cards, humanoids, robotics,
Speaker 1: even modern defense system So now China is using that
Speaker 1: in exchange for potential relaxation of tech curves. That's also
Speaker 1: part of Beijing's strategic play, sending a message to US allies.
Speaker 1: It's making them think twice about aling too closely to
Speaker 1: the tech curbs on China. So I do think all
Speaker 1: these showed China wanted a grand buggaining deal covering not
Speaker 1: just the tariff but attack and geopolitical issues. Given that's
Speaker 1: not going to be easy, you may see continue the
Speaker 1: uncertainty on trade talks, so our base cases. By end
Speaker 1: of this year, the US terminal tariff rate on China
Speaker 1: will probably stay similar to today's level thirty percent forty percent,
Speaker 1: given all these difficulties and the divergence of Beijing and
Speaker 1: the Washington redoubts. And that's going to cost the foreign
Speaker 1: firms margins, cost the Chinese exporters the jobs. So it's
Speaker 1: still downside the risk to the economy how long.
Speaker 4: I mean, it feels like the US side had not
Speaker 4: fully grasped how reliant key parts of the US supply
Speaker 4: chain was on these rares. So, and I'm kind of
Speaker 4: reminded of the piction someone had of the ongoing debate,
Speaker 4: which is the US has decided they absolutely want a
Speaker 4: divorce from China in ten years time, but live together
Speaker 4: in the interim for the entire ten years. That is
Speaker 4: the challenge that you see in some of these talks.
Speaker 7: Yeah, well, I think it's similar to a couple of
Speaker 7: fighting through a divorced process, right, so the two parties
Speaker 7: don't see each other in the future, but then at
Speaker 7: the same time they still have to live with the
Speaker 7: consequence and how to divide up the assets. Rebecca and
Speaker 7: Robin mentioned about the rare earth. It is because the
Speaker 7: counter offer from the US part is probably not good
Speaker 7: enough for China, right so I think as a result,
Speaker 7: even though China has agreed to restart the approval process
Speaker 7: for rare exports at the Geneva session, the Chinese can
Speaker 7: always run slower than expected process to approve it. Right,
Speaker 7: So normally it takes probably one to two weeks to
Speaker 7: approve to get a permit for exports, and now it
Speaker 7: takes two months. Right then, that way, on the surface,
Speaker 7: on paper, China is not violating the agreement, but then
Speaker 7: at the same time it's still not getting your queen
Speaker 7: gredient for your GPUs. So I think China can do
Speaker 7: a lot of these things to slow down the process.
Speaker 7: And also at the same time, people have to recognize
Speaker 7: the situation that the American consumers probably can't live for
Speaker 7: much longer at the higher prospect of much substantial higher invasion.
Speaker 7: And then at the same same time, because of the
Speaker 7: process of this trade war and how this trail will started,
Speaker 7: it actually somehow united the Chinese people together, right, So
Speaker 7: if you're in mainland Chines, you can you can really
Speaker 7: feel the atmosphere rooting for presidency and us also rooting
Speaker 7: for China in this negotiation process.
Speaker 2: So I think the.
Speaker 7: Chinese people is very famous for it bitter, right, So
Speaker 7: in the Chinese culture, it bitter means it can endure
Speaker 7: substantial hardship for a.
Speaker 2: Very long time.
Speaker 7: So as a result, you can see this group of
Speaker 7: people is ready to fight. But then at the same time,
Speaker 7: the American consumers really want to get cheap goods. So
Speaker 7: then that you can see the chinnel can afford to wait.
Speaker 7: And so I think it's setting a stage for the negotiation.
Speaker 7: So I think one shouldn't be too surprised that as
Speaker 7: China Jet one than the Americans would have to give
Speaker 7: more concession during the process, and then towards the end
Speaker 7: we probably get a result that is more favorable than
Speaker 7: expected for the Chinese people.
Speaker 4: And just to follow up on that, the World Banks
Speaker 4: obviously brought out some new forecasts this week, and it's
Speaker 4: cut the growth forecast for seventy percent of the world's economies,
Speaker 4: almost all of the world's biggest economies. It's halved this
Speaker 4: year's forecast for the US. The only country that it
Speaker 4: hasn't cut the forecast for this year next is China.
Speaker 4: So I guess to come back to you how long
Speaker 4: at this point, it's China winning the trade war. It's
Speaker 4: China coming out of this certainly and much better than
Speaker 4: the US.
Speaker 7: Yeah, well, I think it's much better than the trailer
Speaker 7: phase one in twenty eighteen, right, So I think during
Speaker 7: the current trade war, Chinese more prepared than before and
Speaker 7: also Chinese ready to use the A thing metric retaliation
Speaker 7: towards the US counterpart. So I think as a result,
Speaker 7: on the surface, but the Chinese growth is steady, Chinese
Speaker 7: exports is steady, and if you look at the Chinese
Speaker 7: domestic economy, you're seeing two parts of the economy. One
Speaker 7: part is export manufacturing driven that is doing really well,
Speaker 7: so even though the exports to the US has been
Speaker 7: down like one third, but then to the rest of
Speaker 7: the world is really booming.
Speaker 2: And then at the same time, if you want to bury.
Speaker 7: On the Chinese economy, you can look at the consumer sector, right,
Speaker 7: which is way below expectation and it's still not recovering.
Speaker 7: And then if you look at housing sector, the housing
Speaker 7: bubble bursting process is still dragging on. So depending on
Speaker 7: which part of the Chinese economy you look at, and
Speaker 7: then you can draw very different conclusions.
Speaker 4: We have debates in Bloomberg and with the economists as well,
Speaker 4: because we'll have analysis of the growth trajectory being lower
Speaker 4: for China and what that means in terms of people's
Speaker 4: expectations after years of double digit growth. But alongside that
Speaker 4: sort of pessimism around the Chinese economy, you know, we'll
Speaker 4: also be reading the latest release of the breakthrough deep
Speaker 4: Seek or the latest incredible charging technology for electric cars,
Speaker 4: where China seems to be powering ahead much faster than
Speaker 4: people expected. So how do you deal with that schizophrenia
Speaker 4: day to day when people are asking you how's the
Speaker 4: China economy?
Speaker 2: Well?
Speaker 5: I think to Howhong's point. To a certain extent, it
Speaker 5: really depends where you look. And clearly there are areas
Speaker 5: where we've had most notably high quality manufacturing, where enormous
Speaker 5: amounts of investment have been pouring in, and you do
Speaker 5: see the clear emergence of winners among Chinese firms. Think
Speaker 5: about electric cars, think about deep seek AI. These are
Speaker 5: investments that have been going in for the last decade
Speaker 5: or so. We can think about the China twenty twenty
Speaker 5: five plans, for example, by and large, aside from semiconductors,
Speaker 5: China has met all of its aspirations in becoming either
Speaker 5: a global leader or one of a global leader in
Speaker 5: those key sectors. So in some ways China is meeting
Speaker 5: its own tests. But on the other hand, to how
Speaker 5: Hong's point, there is still this quite painful transformation that
Speaker 5: is being ushered away from a debt driven property investment
Speaker 5: led society, and that clearly does still provide drags on
Speaker 5: the economy. I know, Morgan Stanley that you have your
Speaker 5: own sort of social metric index of content in China.
Speaker 6: That's one way to put it. But another way is
Speaker 6: when you kind of look, for.
Speaker 5: Example, a private data sets at protests in China. Now
Speaker 5: they're relatively small scale, we're talking about in the hundreds,
Speaker 5: but by and large we have seen those continue to climb,
Speaker 5: particularly over the course of this year. They tend to
Speaker 5: be very economic focus. These are economic issues. They're rarely political.
Speaker 5: In fact, actually they're off and around housing issues. They're
Speaker 5: often around unpaid wages. So to that point of knowing
Speaker 5: sort of where to look is you can see these
Speaker 5: pockets of real tension, particularly at the local government level
Speaker 5: where finances are really strained. And then over when we
Speaker 5: think about the consumer mood, of course, most consumer indexes
Speaker 5: will still show that we are pretty far from where
Speaker 5: we were pre pandemic as well, So overall that mood
Speaker 5: is different. But to how Hung's point, I will say
Speaker 5: there has been a remarkable transformation in how this is
Speaker 5: all viewed as a result of the trade war. When
Speaker 5: we think about last year, that all of these stories
Speaker 5: about deflation, Robin extensively about concerns about the property market
Speaker 5: when we're going to see a bottom and really the
Speaker 5: cost for ordinary people of Presidency Edimping's push to transform
Speaker 5: the economy.
Speaker 6: Was this really going to pay off the end of
Speaker 6: the boom years. So with these sort of.
Speaker 5: Quite existential questions we are asking, now we are seeing
Speaker 5: this extraordinary support from many parts of the economy for
Speaker 5: presidency backing China standing up and this sort of resurgence
Speaker 5: of sort of a nationalism and a nationalist feeling and
Speaker 5: patriotic feeling as well. So you know, in some ways
Speaker 5: that's nothing to do with the Chinese economy. We're talking
Speaker 5: about the sort of enemy that the US has created
Speaker 5: for itself that has changed the nowational mood in China.
Speaker 4: I think, well, Robin, I think we've established that Rebecca
Speaker 4: is a very careful reader of.
Speaker 2: Your of your work.
Speaker 4: But I'm interested in how you see that, and I
Speaker 4: think also we see maybe a change in the mood
Speaker 4: supporting the leadership. But have we also seen a change
Speaker 4: of direction from the leadership in terms of its commitment
Speaker 4: to rebalancing the economy or is that just wishful thinking
Speaker 4: on the part of the Americans, you know, a commitment
Speaker 4: from the top to a more consumption led economy, which
Speaker 4: is of course what economists have been lecturing the Chinese
Speaker 4: about for many years.
Speaker 1: Well, it's definitely I think Rebecca you are bought on
Speaker 1: about the change.
Speaker 4: Of course, because she's been reading your.
Speaker 1: I have been right and the decline of readership readership
Speaker 1: of mind defletion.
Speaker 2: Report last year.
Speaker 1: What's are dominated by deflation, housing adjustment or a capacity
Speaker 1: Then suddenly, at Rebecca you mentioned and there is a
Speaker 1: changing narrative and how you also briefly touched it. At
Speaker 1: least right now, despite China is nothing a sustainable recovery path.
Speaker 1: Yet at least there is a biification of the narrative,
Speaker 1: a tale of two economies. You have a very dynamic
Speaker 1: tach economy. Every other week you heard the new technology progress,
Speaker 1: either AI model or next generation of batteries or self
Speaker 1: driving cars or even recently China's healthcare bot tech had
Speaker 1: its own deepsick moment, able to make fast follow drugs
Speaker 1: at competitive quality at a fraction of the US cost.
Speaker 1: So all of these are showing a very dynamic tach
Speaker 1: economy that helped Hong Kong. I think in your Hong
Speaker 1: Kong conference today is becoming bigger partially because Hong Kong
Speaker 1: is back with the ecosystem. Private acity investor in tech
Speaker 1: using Hong Kong as acts the channel creating new money.
Speaker 1: That animal spirity is largely back. But once you take
Speaker 1: off or augmented reality glass, you look at conventional consumers
Speaker 1: that are mentioned or housing construction, they are pretty much
Speaker 1: stuck with deflation. And as the economists, we have to
Speaker 1: explain why these sifications happened. I think fundamentally China has
Speaker 1: not shifted from a supply centric business model policy approach
Speaker 1: towards consumption centric.
Speaker 2: They did some.
Speaker 1: Baby steps social welfare or consumer trading, but these are
Speaker 1: too little. Fundamentally, the local government incentives, the GDPKPI, the
Speaker 1: government revenue largely relying on AT which is linked to production.
Speaker 1: All of these are showing past dependency. They are still
Speaker 1: pretty much in supply centric mentality. We proposed they should
Speaker 1: upgrade their Made in China twenty twenty five to something
Speaker 1: called and Open China Market tunicity, focusing on boosting domestic
Speaker 1: demand and consumption in a sustainable way, providing deeper social
Speaker 1: safety net that social welfare household centric reform to unlock
Speaker 1: China's consumption potential. However, according to Bloomberg, they are probably
Speaker 1: still debating on doubling down on tech and the supply
Speaker 1: side in the next five year plan. So I do
Speaker 1: think that's the reason of the bification of the economy
Speaker 1: a tale of two economies. Unfortunately, for a bigger part
Speaker 1: of the macroeconomy, they're still stuck with deflation.
Speaker 2: So volume growth is fine.
Speaker 1: Stephanie mentioned many people maintained or upgraded their China forecast
Speaker 1: to four and a half percent or higher for this year,
Speaker 1: but that's for real GDP, that's for volume. Once you
Speaker 1: look at value or nominal side, we think China's normal
Speaker 1: GDP growth were stay at the subdued level of three
Speaker 1: and a half percent throughout maybe the end of next year,
Speaker 1: given the deflation problem and the recently example of they
Speaker 1: did some interesting introduction of self driving cars, but meanwhile
Speaker 1: you see all these cut through the pricing war during
Speaker 1: IV among all these TV cut firms. So that's a
Speaker 1: perfect example of the supply versus a demand. That imbalance
Speaker 1: is quite persistent in China.
Speaker 4: And just to unpack a little bit for people listening
Speaker 4: who are not always listening to the sort of economist
Speaker 4: debates about this, when you talk about the rebalancing and
Speaker 4: when you talk about still focus on supply and some
Speaker 4: of the incentives. I mean, it's an economy that is
Speaker 4: geared around an extraordinarily high level of investment over many,
Speaker 4: many years, and much lower consumption than you see in
Speaker 4: most economies, certainly advanced economies, but also economies of a
Speaker 4: similar income. And what you were saying, Robin, is that
Speaker 4: the local government officials are incentivized still around just pushing
Speaker 4: out output rather than getting income to households or providing
Speaker 4: welfare services. How and then when we discussed this before
Speaker 4: the session, you made the point that this was about
Speaker 4: not just rebalancing the Chinese economy but also the US
Speaker 4: econom I'm not sure that's the way the US sees that,
Speaker 4: but just explain that briefly to us.
Speaker 7: Yeah, Well, I think to rebalance both sides has to
Speaker 7: work together. I think the Chinese consume too little invests
Speaker 7: too much, and then the US is the reverse. If
Speaker 7: you want to rebalance this structure, the US has to
Speaker 7: produce more, consume less, and then vice versa for the Chinese.
Speaker 7: I think for China is a monumental task in the
Speaker 7: sense that if you look at the domestic economy just now,
Speaker 7: we've mentioned about the housing bubble bursting process. Now in
Speaker 7: this process, indebted department of the Chinese economy is really
Speaker 7: the household. The household is borrowed up to their eyeballs.
Speaker 7: The non financial that the GDP ratio is about three
Speaker 7: hundred percent in China. So when you have this department
Speaker 7: that is boring heavily to buy up properties, and then
Speaker 7: now in a property priced inflationary process, it's very difficult
Speaker 7: for this department to deleverage because this department cannot print money.
Speaker 7: But then, on the other hand, the US is a
Speaker 7: different situation where you have the public department that is
Speaker 7: boring up all of that, and then the US households
Speaker 7: deservice racial is it's still at odd time low. In
Speaker 7: this kind of economic structure, then you'll see an inflationary process.
Speaker 7: The US government can't keep its budget deficit down, but
Speaker 7: then at the same time you're facing higher and high
Speaker 7: inflationary pressure.
Speaker 2: And then in Chinese the opposite.
Speaker 7: If you really want to rebalance, it's a global rebalance process.
Speaker 2: It's not just about China.
Speaker 7: If you look at China, so the way we manage
Speaker 7: our economy, right, so we try to rebalance it for
Speaker 7: like decades I remember still since two thousand and seven, right,
Speaker 7: so when the ex government was in charge, there was
Speaker 7: this saying about the Chinese managing Chinese economy. It's about
Speaker 7: it's riding a bicycle, right, so if you're too fast
Speaker 7: or too slow, it will tap over. I think you know,
Speaker 7: if you look back now, almost twenty years later, we
Speaker 7: look at the Chinese economy, it's actually more investment driven
Speaker 7: than before and less consumption, so that it's telling you
Speaker 7: that whatever happened in the past two decades hasn't been successful.
Speaker 7: We have to change the way of thinking for China.
Speaker 7: Just rebalancing on its own it hasn't been successful. I
Speaker 7: think it's a global rebalancing process.
Speaker 4: I want to just say something a bit about not
Speaker 4: just the rebalancing of the individual US and China economies,
Speaker 4: but I would say globally, there's a sort of rebalancing
Speaker 4: in markets that's happening. We're seeing the dollar four relative
Speaker 4: to every currency, but certainly many around here, and we
Speaker 4: are seeing a reallocation of investment. People are still heavily
Speaker 4: invested in the US, it's hard to avoid, but certainly
Speaker 4: at the margin we're seeing money flow, particularly perhaps into
Speaker 4: this region. Rebecca, just tell us a little bit about
Speaker 4: how you see the impact for Hong Kong as a
Speaker 4: financial system, for the relative role of the dollar here
Speaker 4: and investment sentiment in this.
Speaker 6: Part of the world, not just in Hong Kong, but
Speaker 6: in Asia.
Speaker 5: This broader question of the role of the US dollar
Speaker 5: going forward. There'll be people in this who over the
Speaker 5: last year, whether it was trading the Taiwan currency, whether
Speaker 5: it was trading the Japanese carry trade, who have been
Speaker 5: on the forefront of feeling this sort of this shift
Speaker 5: in the tectonic place. Essentially, there was a big debate
Speaker 5: over whether or not actually we were seeing some kind
Speaker 5: of reversal of the Asian financial crisis, essentially declining confidence
Speaker 5: in the dollar, strengthening local currencies, and whether or not
Speaker 5: that would essentially mean a massive return of capital back
Speaker 5: home now that sort of phenomena hasn't really started already
Speaker 5: yet in massive numbers, but certainly we are already starting
Speaker 5: to see.
Speaker 6: That playing out.
Speaker 5: And I think for many Asian countries broadly speaking, economically,
Speaker 5: there's this question of how that impacts their export driven
Speaker 5: economies that have, of course so relied on that currency disparity.
Speaker 5: But also from a sort of financial markets point of view,
Speaker 5: there will be this question of how deep and liquid
Speaker 5: home markets are and their capacity to absorb that home
Speaker 5: currency and whether if they are sort of I suppose mature.
Speaker 6: Enough to start to start adapting that back. But by
Speaker 6: and large.
Speaker 5: There is this potential good news story that we will
Speaker 5: see the sort of reinvestment back into home currencies. I
Speaker 5: took a trip to the US not so long ago.
Speaker 5: I spoke to a lot of US front managers, particularly
Speaker 5: outside of New.
Speaker 6: York and places in New England and so on.
Speaker 5: And what struck me that was sort of really remarkable
Speaker 5: is anecdotally, although a lot of them are persisting with
Speaker 5: their various macro and global trades and bullish on the US,
Speaker 5: they still believe in the US exceptionalism story. By and large,
Speaker 5: almost every single one of them told me that when
Speaker 5: it comes to their personal investments, they were all worried
Speaker 5: about overexposure to the dollar. They're all worried about thinking
Speaker 5: about where else I diversify, What other currencies?
Speaker 6: Do we go to gold?
Speaker 5: Even though it's too late, except I just heard this
Speaker 5: conversation come up again and again and again. It's so
Speaker 5: interesting taking that into the Asian context and how that
Speaker 5: resonates with traders and investors here as well.
Speaker 4: Robert, you mentioned the role of Hong Kong, but do
Speaker 4: you also see just a long term shift, this reversal
Speaker 4: of the Asia financial crisis, if you like, for this region.
Speaker 1: Hong Kong benefited from three wives of inflows. You mentioned
Speaker 1: about the capital flows first wave. Since September last year,
Speaker 1: policy makers in Beijing believe stock market is a very
Speaker 1: important confidence vote, confidence progracy, so in terms of national
Speaker 1: team or reserve management or China's sovereign worth education. Now
Speaker 1: they value Hong Kong more than ever before that was
Speaker 1: the stage one more driven by government. Then after this
Speaker 1: earlier this year deepsick moment, people realized that okay, China
Speaker 1: still has these innovation capabilities, and due to Lai issues,
Speaker 1: a lot of big tech laims are listed in Hong Kong,
Speaker 1: not in on shore China. So Hong Kong benefited from
Speaker 1: that narrative change. Okay, China innovation and animal spirit in
Speaker 1: pact is back recently the April second deliberation day, and
Speaker 1: as you've definitely and rebeccommentioned, people are debating on the
Speaker 1: falling of US exceptionalism, weakening US dollar, and the third
Speaker 1: wave of influence is not from global money yet, is
Speaker 1: from Chinese offshore money. High networks individuals or exporters who
Speaker 1: parked too much of their money in US asss in
Speaker 1: the last five years. They were too exposed to US
Speaker 1: dollar assets. Now they are participating in things like Hong
Speaker 1: Kong asses or Hong Kong ipo so called the high quality.
Speaker 1: They may be assets listed in Hong Kong. So Hong
Speaker 1: Kong benefited from that. But the final wave, the most
Speaker 1: important one, has not come yet global money allocating to
Speaker 1: China and Hong Kong. Well, China is participating in this
Speaker 1: debate on week dollar. Maybe China can benefit from that,
Speaker 1: but I don't think they are fully red need to
Speaker 1: see this moment. They need to improve polery transparency, they
Speaker 1: need to refleate and the rebalance, try to get rid
Speaker 1: of the definition problem. If Beijing can deliver this, I
Speaker 1: think they will benefit much more and the fully feeling
Speaker 1: this opportunity of so called diversification away from US dollar.
Speaker 1: But sofa Hong Kong money is mostly Chinese money, either
Speaker 1: from Beijing or from offshore Chinese. That's the way they
Speaker 1: benefited the sofa.
Speaker 4: How long we'll have the last word? Do you do
Speaker 4: you agree with Robin that we're just at the first
Speaker 4: stage of a process. That's quite a few steps to
Speaker 4: go if we're going to have this shift in the
Speaker 4: center of financial gravity in this direction.
Speaker 7: Yeah, well, I think more likely than not, you know,
Speaker 7: the US dollar will continue its depreciation process.
Speaker 2: Over the next couple of years.
Speaker 7: I think a very strong US dollars has been a
Speaker 7: symptom of the global imbalance. And also the Chinese currency
Speaker 7: is way too weak, and I think one of the
Speaker 7: reasons why the Chinese currency was so weak was because
Speaker 7: we have to maintain the edge in our export sector.
Speaker 7: And then at the same time, I think the Chinese
Speaker 7: currency rate is more driven by capital flow rather than
Speaker 7: trade flows. So I think as a result, in the
Speaker 7: past couple of years, usually seeing the capital keep flowing
Speaker 7: out of China and going into the US capital market.
Speaker 7: And also for the US dollars that the Chinese export
Speaker 7: have been receiving, they have been keeping it overseas to
Speaker 7: be reinvested in the US market.
Speaker 2: So I think as a.
Speaker 7: Result, you can see, you know, in the past couple
Speaker 7: of years, the Chinese currentcy has been weak. You know,
Speaker 7: it's because of the direction of the capital flow has
Speaker 7: not been favorable to the Chinese currency. But now the
Speaker 7: table has turned. I think the narrative of the Trump
Speaker 7: administration is making it itself hostile not only to the
Speaker 7: Chinese economy, but also to the global economy, actually hitting
Speaker 7: hard on the airlines as well. All right, So I
Speaker 7: think in this process, and also after the Russian and
Speaker 7: the Ukraine War, I think people start to realize that,
Speaker 7: you know, the US dollar holding may not be as
Speaker 7: safe as they once were, and now they have to
Speaker 7: thing for themselves. So I think as a result, you know,
Speaker 7: we're seeing money being reallocating out of the US market.
Speaker 2: Otherwise how could you explain.
Speaker 7: Right, So, after a very significant risk of event on
Speaker 7: the Liberation Day, the US dollar continue to depreciate, and
Speaker 7: I think the the process could accelerate from here.
Speaker 4: Well, this is making me feel a bit old talking
Speaker 4: about the full circle from the age of financial crisis,
Speaker 4: because my first ever trip to Hong Kong was in
Speaker 4: the autumn of nineteen ninety seven with the US Treasury.
Speaker 4: I just joined the US Treasury. It was the World
Speaker 4: Bank meetings, and we were just getting to grips with
Speaker 4: at that point the crisis in Thailand. But of course
Speaker 4: it became the financial crisis. I'm not sure we're full
Speaker 4: circle stance then, but we've certainly come a very long way,
Speaker 4: and in this region probably.
Speaker 2: Most of all.
Speaker 4: Thank you very much for listening to Trumponomics from Bloomberg.
Speaker 4: It was hosted by me Stephanie Flanders. I was joined
Speaker 4: by Bloomberg's Rebecca Chong Wilkins, Morgan Stanley's Robin Singh and
Speaker 4: lotuses how Long, with special thanks to the team at
Speaker 4: Bloomberg Hong Kong invest Thanks very much,