Speaker 1: Well, China is consumer inflation, as we've been hearing, accelerated
Speaker 1: in July to the highest level in two years. Joining
Speaker 1: us from our Hong Kong studio to discuss is in
Speaker 1: the current Bloomberg's Chief Asia Economics correspondent, So not unique
Speaker 1: with high prices in but how much is this going
Speaker 1: to complicate things for the ps P BOC that's trying
Speaker 1: to stimulate the economy. So on the headline basis, that
Speaker 1: does suggest inflation in China is accelerating. Juliet in particular,
Speaker 1: what's driving up the headline number has been a big
Speaker 1: uptick in the price of food. Pork prices actually gained
Speaker 1: on year, and fresh fruit and veg also up in
Speaker 1: the double digit area as well. So food is a
Speaker 1: big part of what's happening, and it might suggest that
Speaker 1: China's inflation is accelerating, except I would point out to
Speaker 1: you that on a core basis, China's inflation actually only
Speaker 1: gained zero point eight percent, So on a core basis,
Speaker 1: which is really what a lot of central banks ultimately
Speaker 1: look at strips out of price of oil and food
Speaker 1: and everything else, it's fairly modest. So I'm not sure
Speaker 1: that this will change the game that much. In China.
Speaker 1: We know premiarily catching himself a saide by the way,
Speaker 1: that as long as you keep inflation, say below three
Speaker 1: and a half percent, an unemployment below five and a
Speaker 1: half percent, they can kind of nurse things along. Okay.
Speaker 1: So so you know, on a headline basis, yes, China's
Speaker 1: inflation is accelerating. You could say that's pointing towards the
Speaker 1: global trend, but I don't see it as a game changer.
Speaker 1: You look at the trade data that we had earlier
Speaker 1: in the weekend, particularly the export numbers very robust. I
Speaker 1: can't recall I think it was eighteen percent. Was that
Speaker 1: the game? And so when you look at what's happening
Speaker 1: with producer prices, an increase of four point two percent.
Speaker 1: And I think it's also fair to point out that
Speaker 1: there has been a substantial pullback in the price of
Speaker 1: crude oil, probably since the survey data for the month
Speaker 1: of July was put together. So the producer price story
Speaker 1: in Shina is a dramatic turnaround from where a war
Speaker 1: a year ago. So today's numbers did show, like you mentioned,
Speaker 1: a producer prices are cooling, and that's for two reasons.
Speaker 1: And one base effect, it's being compared to a big
Speaker 1: surge one year ago. A number two, like you mentioned,
Speaker 1: commodity prices me off the boil and the oil prices
Speaker 1: coming off the ball. Remember that oil actually is back
Speaker 1: to where it was before the Russian invasion of Ukraine.
Speaker 1: So all of that is lending itself towards taking pressure
Speaker 1: off China's factory cost space. That would be good for
Speaker 1: their profits, and you know, at the margins, it might
Speaker 1: sort of take pressure off the global inflation story because
Speaker 1: the Chinese factors won't be under as much pressure to
Speaker 1: lift their own prices to the global consumers. But when
Speaker 1: you take the PPI slowdown in its totality in China,
Speaker 1: th it just kind of adds to the picture of
Speaker 1: saying a few moments ago that, okay, you can say
Speaker 1: headline inflation is picking up, but the overall inflation story
Speaker 1: in China remains certainly relatively subdued and even somewhat subdued really,
Speaker 1: and I think that the authorities won't be too concerned
Speaker 1: about it, and they will continue to tap some money
Speaker 1: into the economy to keep things taking over all, right,
Speaker 1: continue to stimulate then, and looking ahead as well into
Speaker 1: what kind of I guess impact we've seen from the
Speaker 1: COVID lockdowns and and how much further that could complicate
Speaker 1: things too. There's no doubt that the ongo in COVID
Speaker 1: lockdowns are complicated the recovery, especially on the services and
Speaker 1: the consumer side. That's one of the reasons inflation is
Speaker 1: somewhat subdued. Juliet, You know there there has been clearly
Speaker 1: the export story has recovered. Maybe that's a mixture of
Speaker 1: factories getting back online. Now for the lockdowns, maybe it
Speaker 1: does reflect ongoing robust global demand, but there are some
Speaker 1: sounds of weakness in the numbers. But nonetheless, the really
Speaker 1: soft part of the economy remains the real estate sector,
Speaker 1: the consumer spending sector, in the services sector, and COVID
Speaker 1: zero is kind of having casting a long shadow over
Speaker 1: all of that. And obviously, with the variant of omercron
Speaker 1: that we all know about, that's going to continue testing
Speaker 1: China strategy. And you could argue China's over the worst
Speaker 1: this lockdowns. Shanghai came out of that brutal two months
Speaker 1: lockdown at the end of May, and perhaps China is
Speaker 1: pulling clear of that, but nobody can say that for certain.
Speaker 1: Still a long time before the Party Congress comes up
Speaker 1: in November. So if there's not a resolution to the
Speaker 1: fact that the property market is still suffering right now,
Speaker 1: sales continue to shrink. If there's not a resolution, does
Speaker 1: that mean that there is the probability that we're going
Speaker 1: to see even more of a drag when it comes
Speaker 1: to inflationary pressures on the retail level. Because the property
Speaker 1: market is in such dire straits, I don't think anybody
Speaker 1: is yet calling a bottom or turnaround for the real
Speaker 1: estate sector. And as you say, when you consider the
Speaker 1: outside effect that has on people's sense of self worth,
Speaker 1: on household net worth in terms of overall economic activity,
Speaker 1: the estimates are up to maybe around twenty percent economic activity.
Speaker 1: So if you have the housing sector in the slump
Speaker 1: that it is, with salesman continue to be weak, and anyway,
Speaker 1: the ongoing practical disruptions linked with COVID zero in terms
Speaker 1: of what that means for finishing developments and people getting
Speaker 1: in about of course, that's going to continue to be
Speaker 1: a drag on the broader economy. And nonetheless, though the
Speaker 1: consensus is that Sean's second half will still be better
Speaker 1: than the first half, that things will be improving that
Speaker 1: the infrastructure spending is getting accelerated at the local government level.
Speaker 1: That will start up some activity that the authorities will
Speaker 1: put a floor under the under the realist its sectory
Speaker 1: already they are taking measures, remember talk for special fund
Speaker 1: to help those developers get those projects finished, and of
Speaker 1: course mortgage forgiveness for those people who don't want to
Speaker 1: pay the mortgages until the developments are done. So there's
Speaker 1: a suggestion that maybe they might put a floor under it.
Speaker 1: But again, a lot of ifs and boats in all
Speaker 1: of this. You would have to say, this still remains
Speaker 1: a lot of pressure on China's economy and if the
Speaker 1: export story does come off the ball the way people
Speaker 1: have been calling for a long time now, then it
Speaker 1: could be a bumpy end of the year for them.
Speaker 1: Speaking of getting out and about I know you've been
Speaker 1: closely monitoring, both for your job and personally what's happening
Speaker 1: in Hong Kong with the reduction of quarantine. To what
Speaker 1: are you hearing from analysts in terms of whether or
Speaker 1: not this is going to be able to revive and
Speaker 1: support Hong Kong's role as a key financial center. Well,
Speaker 1: it's obviously it's Stockholm syndrome. Again, you would have to
Speaker 1: say when they cook quarantines from seven nights and three nights,
Speaker 1: that's clearly a positive. It does will lend itself towards
Speaker 1: better mobility and will help both residents and business people
Speaker 1: getting into and out of Hong Kong going forward. But
Speaker 1: of course let's not forget where we are a relative
Speaker 1: to the rest of the world. It's still not just
Speaker 1: quarantine but several kind of layers of defense or trip
Speaker 1: wires that prohibit passengers or travelers getting tuned from Hong Kong.
Speaker 1: So that's going to continue to drag on the mobility,
Speaker 1: on its role as a global hub, on the ability
Speaker 1: to do business with the rest of the world, especially
Speaker 1: when New York and London, Singapore have reconnected with everybody else.
Speaker 1: There is a feeling that the authorities are in the
Speaker 1: path or trajectory now that they will continue to ease
Speaker 1: barring some kind of another massive outbreak with variants, etcetera.
Speaker 1: That remains to be seen. They're obviously being very cautious
Speaker 1: as they are. Um there is supposed to be a
Speaker 1: big financial summit in November. People looked at that and
Speaker 1: maybe a deadline for when they might ease up in
Speaker 1: the following three days and move to some kind of
Speaker 1: a PC or testing thing. But you know, operating within
Speaker 1: the political system that they are obviously on a headline basis,
Speaker 1: you would say it's a positive for Hong Kong. It's
Speaker 1: it's that they're stepping forward, but you know clearly it's
Speaker 1: a negative at the same time, we have along way
Speaker 1: to go. All right, Well, that's how it. Penda might
Speaker 1: be able to see you in November in the Karen
Speaker 1: Bloomberg's chief Asia Economics correspondent with US in Hong Kong,