WEBVTT - Biden Unveils China Tariffs, Alibaba & Tencent Earnings 0:00:02.480 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:10.039 --> 0:00:13.840 This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis 0:00:13.840 --> 0:00:16.560 along with Doug Krisner. Join us each day for the 0:00:16.600 --> 0:00:20.000 stories making news and moving markets in the Asia Pacific. 0:00:20.200 --> 0:00:22.640 You can subscribe to the show anywhere you get your 0:00:22.640 --> 0:00:26.600 podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and 0:00:26.640 --> 0:00:28.280 The Bloomberg Business app. 0:00:28.560 --> 0:00:31.360 Earlier in the day, we heard from Fed shair J. Powell, 0:00:31.400 --> 0:00:33.600 and he was saying that the Central Bank needs to 0:00:33.640 --> 0:00:37.200 be patient as it weights some more evidence that high 0:00:37.240 --> 0:00:40.559 interest rates are doing a job on curbing inflation. At 0:00:40.600 --> 0:00:42.960 the same time, mister Powell seemed to double down on 0:00:43.000 --> 0:00:46.479 the need to keep those borrowing cost higher for longer. 0:00:46.560 --> 0:00:48.720 I don't think that it's likely, based on the data 0:00:48.720 --> 0:00:51.200 that we have, that the next move that we make 0:00:51.560 --> 0:00:53.880 would be a rate hike. I think it's more likely 0:00:53.920 --> 0:00:55.800 that we'll be at a place where we hold the 0:00:55.840 --> 0:00:57.120 policy rate where it is. 0:00:57.400 --> 0:01:01.600 Fedchhair Ja Powell, speaking earlier today at an event in Amsterdam, 0:01:01.880 --> 0:01:04.880 he said that he expects inflation will move lower on 0:01:04.920 --> 0:01:08.639 a monthly basis. However, price figures in the first quarter 0:01:08.720 --> 0:01:10.120 have tempered that confidence. 0:01:10.360 --> 0:01:10.840 Just a bit. 0:01:11.200 --> 0:01:14.120 He spoke right after the PPI data that we had 0:01:14.120 --> 0:01:15.959 here in the US for the month of April. It 0:01:16.080 --> 0:01:20.039 showed that inflation at the wholesale level rose last month, 0:01:20.080 --> 0:01:20.959 more than forecast. 0:01:21.160 --> 0:01:24.840 Let's get to Sean Darby, Managing director at Mizuho Securities Asia, 0:01:25.000 --> 0:01:27.680 to talk a little bit more about the impact that 0:01:27.680 --> 0:01:30.760 that report has and also how he sees markets moving 0:01:30.840 --> 0:01:33.920 over the short term. Sewan, thank you very much for 0:01:33.959 --> 0:01:36.600 being with us here in our studios on a holiday 0:01:36.640 --> 0:01:39.679 but his birthday in Hong Kong, but nice to have 0:01:39.720 --> 0:01:42.039 you join us here. So when we look at that 0:01:42.400 --> 0:01:46.720 producer prise data, of course the headline data for month 0:01:46.760 --> 0:01:49.560 on month was kind of hot, but then you had 0:01:49.560 --> 0:01:52.880 these other mitigating factors on balance, neutral in your view 0:01:53.360 --> 0:01:53.640 or what. 0:01:54.120 --> 0:01:57.080 Well, certainly the boommark it took it reason to be well, 0:01:57.200 --> 0:02:01.280 so the curve actually dropped across all of the duration. 0:02:01.960 --> 0:02:04.240 I think one of the interesting thing aspects of the 0:02:04.320 --> 0:02:07.960 producer prices is actually corporates are attaining very very strong 0:02:08.040 --> 0:02:11.480 pricing power, and that doesn't really mean that we're going 0:02:11.520 --> 0:02:14.560 to be seeing a recession that soon. Companies are not 0:02:14.639 --> 0:02:17.160 in a position at the moment to having to either 0:02:17.520 --> 0:02:21.720 protect margins particularly or indeed feeling that they're going to 0:02:21.720 --> 0:02:25.120 have to lower prices to either clear infantry or garner demand. 0:02:25.680 --> 0:02:30.600 So all of this really, I think reinstates fairchairperson's power view, 0:02:30.680 --> 0:02:32.560 which is that it's going to be higher for longer, 0:02:32.960 --> 0:02:35.200 and we're not going to be really seeing rate cuts 0:02:35.240 --> 0:02:39.240 potentially really until fourth quarter, and certainly the equity market 0:02:39.400 --> 0:02:42.000 isn't going to get any relief from a very big 0:02:42.919 --> 0:02:45.960 series of rate cuts and perhaps until twenty twenty five. 0:02:46.120 --> 0:02:49.280 You don't seem to be too surprised by that notion. 0:02:49.360 --> 0:02:51.600 Were you expecting the fair to be on hold for 0:02:51.639 --> 0:02:52.720 the foreseeable future. 0:02:53.840 --> 0:02:56.480 I really feel that at the moment, if you look 0:02:56.520 --> 0:02:59.480 at things like producer prices or credit spreads, credit spreads 0:02:59.480 --> 0:03:01.800 are very very tight. For where we are on the cycle, 0:03:01.840 --> 0:03:05.160 you have an inverted Yelk curve, credit spreads tight. They 0:03:05.400 --> 0:03:09.440 have not really presaged a recession at all over the 0:03:09.520 --> 0:03:11.920 last year. In fact, it's failed. I think the FED 0:03:11.960 --> 0:03:15.200 recession model has been at sixty percent for nearly twelve 0:03:15.240 --> 0:03:17.720 months now, and the reason for all that is that 0:03:17.840 --> 0:03:21.400 as people enter the workforce, they actually produce goods that 0:03:21.560 --> 0:03:25.040 economic output picks up and you get a sort of 0:03:25.320 --> 0:03:30.120 an enduring profit cycles people as wages feedback into the economy. 0:03:30.200 --> 0:03:33.080 So ironically, at the moment it's been more of a 0:03:33.160 --> 0:03:37.040 labor problem in this cycle than anything else. And certainly, 0:03:37.120 --> 0:03:40.000 certainly in that respect, you're not really going to see 0:03:40.280 --> 0:03:44.000 economic activity fade until sometime in twenty twenty five. 0:03:44.720 --> 0:03:47.000 Yeah, And that seems to be most important because the 0:03:47.040 --> 0:03:50.720 earnings appear to be tied to economic growth and also 0:03:51.120 --> 0:03:54.800 the efficiency of companies and such. And as long as 0:03:54.840 --> 0:03:58.000 inflation doesn't get a lot worse, if it starts to 0:03:58.000 --> 0:03:59.560 go to the other direction, then all bets are off, 0:03:59.600 --> 0:04:02.520 I suppose, because higher interest rates on the FED would 0:04:02.560 --> 0:04:06.560 definitely get markets jangled. But as long as we see growth, 0:04:07.320 --> 0:04:09.400 sort of with the job growth of one hundred and 0:04:09.440 --> 0:04:12.040 seventy five thousand, that's not bad news is good news, 0:04:12.080 --> 0:04:15.240 that's like ok news is good news. Yeah. 0:04:15.280 --> 0:04:19.360 I think the reality is that globally we've had a 0:04:19.760 --> 0:04:25.320 enormous period of immigration, and the OECD wrote about this 0:04:25.400 --> 0:04:28.120 and its outlooked I think two weeks ago that one 0:04:28.120 --> 0:04:31.400 of the important factors that's allowed the economic recovery to 0:04:31.560 --> 0:04:35.120 be extended was the fact that immigration has returned as 0:04:35.120 --> 0:04:38.239 being a big swing factor for labor markets in places 0:04:38.279 --> 0:04:41.799 like the US, UK and Australia, and that has been 0:04:41.960 --> 0:04:45.599 perhaps the savior actually for these central banks in a 0:04:45.640 --> 0:04:49.480 sense that they've not had to face recessionary problems. I 0:04:49.520 --> 0:04:52.480 think the other thing to remember is that the two 0:04:52.560 --> 0:04:57.640 cycles proceeding, so the cycle before the COVID was a 0:04:57.640 --> 0:05:01.919 deflationary one. COVID itself was a defe inflationary experience, but 0:05:02.000 --> 0:05:05.400 actually all the cycles preceding those have actually been inflationary, 0:05:05.400 --> 0:05:07.600 and we're just sort of going back to learn what 0:05:07.680 --> 0:05:11.040 it looks like or how things are during a period 0:05:11.040 --> 0:05:14.400 where you are fighting inflation rather than fighting deflation. I 0:05:14.400 --> 0:05:16.520 think that's also been part of the problem for the 0:05:16.560 --> 0:05:19.560 bomb market. Nobody really has had the experience, including myself 0:05:19.600 --> 0:05:20.080 as well. 0:05:20.560 --> 0:05:23.080 Let's talk a little bit about geopolitics, because we have 0:05:23.160 --> 0:05:26.640 these new tariffs now on certain Chinese goods being implemented 0:05:26.640 --> 0:05:30.040 by the Bide administration. Not surprising that Beijing is going 0:05:30.080 --> 0:05:32.960 to blow back just a little bit and vow measures 0:05:32.960 --> 0:05:36.840 of its own. How do you kind of evaluate where 0:05:36.839 --> 0:05:39.640 we are right now in terms of US China tensions. 0:05:40.520 --> 0:05:43.200 Well, I think the way to succinctly put it is 0:05:43.560 --> 0:05:46.479 things are not getting better and they're getting worse. And 0:05:46.640 --> 0:05:49.320 for me, I think we're still going to be in 0:05:49.360 --> 0:05:52.839 a cycle even after the US elections, in which the 0:05:53.000 --> 0:05:55.960 whole trade sanctions and restrictions are going to be an 0:05:56.279 --> 0:05:59.280 ongoing theme. Actually, so I think the way to put 0:05:59.320 --> 0:06:01.400 it is that we're going to have to live with 0:06:01.520 --> 0:06:07.200 further restrictions, further tariffs, and particularly at the high end 0:06:07.320 --> 0:06:10.000 on the technology end, I don't see any glimmer of 0:06:10.120 --> 0:06:12.760 light in which the US is going to relax any 0:06:12.800 --> 0:06:18.479 of those exports or restrictions on semiconductors. So again, I 0:06:18.520 --> 0:06:22.919 think we're in a there's no sort of endgame in this. 0:06:22.920 --> 0:06:24.920 This is going to be a theme that's going to 0:06:25.000 --> 0:06:27.159 continue for the next three to four years. 0:06:26.920 --> 0:06:31.599 And US China rivalry on semiconductors brings Taiwan into the picture. Now. 0:06:31.839 --> 0:06:34.000 Next week will be an important week. William Lai will 0:06:34.040 --> 0:06:38.920 be inaugurated as Taiwan president. He supports the status quo 0:06:39.320 --> 0:06:44.480 with China Sean, but he calls himself a pragmatic worker 0:06:44.520 --> 0:06:48.160 for Taiwan independence, and the way that he gets at 0:06:48.160 --> 0:06:51.000 that is that Taiwan has de facto independence now and 0:06:51.200 --> 0:06:53.800 that's what the status quo means, But I'm curious whether 0:06:53.880 --> 0:06:57.440 or not you think we might see a Taiwan discount 0:06:57.440 --> 0:07:00.400 to be applied to the equity market there if he 0:07:00.440 --> 0:07:01.080 gets plucky. 0:07:02.040 --> 0:07:04.559 I think the unusual thing at the moment is that, 0:07:05.600 --> 0:07:09.360 for first of all, Taiwan and China's economies are inextricably linked. 0:07:09.520 --> 0:07:11.440 So if you look at the pmis over a three 0:07:11.520 --> 0:07:16.000 or four year period, they generally sort of follow each other. 0:07:16.080 --> 0:07:22.440 There's a symbiotic relationship between the growth rates. The second 0:07:22.520 --> 0:07:26.160 thing is that in many respects, the economy now is 0:07:26.440 --> 0:07:29.320 in its own sort of inflationary boom, which is similar 0:07:29.320 --> 0:07:32.560 to what Japan is, where you have a very undervalued currency, 0:07:33.200 --> 0:07:36.880 you have a central bank that's pretty much quite far 0:07:36.960 --> 0:07:40.679 behind the curve and raising rates in contrast to everyone else. 0:07:41.160 --> 0:07:44.920 And thirdly, everywhere you look, whether it's from land prices 0:07:45.080 --> 0:07:50.760 or producer prices or CPI core CPI, actually Taiwan's is 0:07:50.800 --> 0:07:56.120 actually inflating still. So in that respect, the political or 0:07:56.160 --> 0:08:00.280 geopolitics is actually being sort of surpassed by the fact 0:08:00.320 --> 0:08:03.880 that's actually the economy is doing very well and on 0:08:03.960 --> 0:08:08.000 a very different path to what everyone else is experiencing globally. 0:08:08.040 --> 0:08:11.960 They've also got labor shortages and an extremely low unemployment rate. 0:08:12.040 --> 0:08:15.600 So I think in the sense, geopolitics is actually being 0:08:15.880 --> 0:08:18.280 pushed to one side because the economy is actually doing 0:08:18.360 --> 0:08:19.400 pretty well in Taiwan. 0:08:19.600 --> 0:08:21.800 But I'm curious about the outlook. If we can agree 0:08:21.800 --> 0:08:25.080 that there is just so much concentration of semiconductor of 0:08:25.120 --> 0:08:29.200 production visa v TSMC, and if countries like the US 0:08:29.200 --> 0:08:32.280 are a little uneasy about the level of concentration, and 0:08:32.440 --> 0:08:38.240 other chip makers seek to diversify away from Taiwan, including TSMC, 0:08:38.320 --> 0:08:42.240 which is actually helping to create facilities in the United States, 0:08:42.800 --> 0:08:46.480 might the economy go into a lower gear as the 0:08:46.520 --> 0:08:51.920 world becomes less dependent on chip manufacturing from TSMC. Or 0:08:51.960 --> 0:08:54.760 is it simply too early to make that call. 0:08:54.920 --> 0:08:57.280 No, that's a fair point, I think at the moment, 0:08:57.320 --> 0:08:59.920 as I said, you have this sort of inflationary bio 0:09:00.080 --> 0:09:02.679 which is working through the economy, mainly be caused by 0:09:03.040 --> 0:09:06.280 a very cheap exchange rate. But your point is well taken. 0:09:06.440 --> 0:09:11.520 The irony is that the competitive part of Taiwan semiconductors 0:09:11.840 --> 0:09:15.360 is to some extent being hollowed out through this sort 0:09:15.400 --> 0:09:17.320 of off you know, sort of on shoring in the 0:09:17.360 --> 0:09:20.520 developed world, and in that respect, you're not going to 0:09:20.520 --> 0:09:24.760 get the same level of output growth that you would 0:09:24.800 --> 0:09:27.800 have had in pre proceeding cycles, you know, sometime in 0:09:27.880 --> 0:09:30.720 two or three years from now, so that you know, 0:09:30.800 --> 0:09:33.800 in fairness that time one is going to sort of 0:09:33.800 --> 0:09:37.840 see below trend growth from from twenty twenty five twenty 0:09:37.880 --> 0:09:41.600 six purely because they don't have that same facilities in situ. 0:09:41.920 --> 0:09:44.760 But you are sounding like a Taiwan bull and you're 0:09:44.840 --> 0:09:48.880 you're also quite bulled up on the hanksayg Tech Index, 0:09:49.520 --> 0:09:53.200 it is up thirty four percent since February first. When 0:09:53.280 --> 0:09:55.600 is enough enough? Well? 0:09:55.600 --> 0:09:58.559 I think the interesting thing about the Hansen Tech Index 0:09:58.679 --> 0:10:02.440 is that it's a pure or look at everything that 0:10:03.920 --> 0:10:06.679 is more on the exports side and nothing to do 0:10:06.720 --> 0:10:10.440 with real estate or finance. So it's a very clean 0:10:10.559 --> 0:10:14.160 way of getting to grips of how China's sort of 0:10:14.440 --> 0:10:18.400 other part of the economy is doing. And in fairness, 0:10:18.520 --> 0:10:21.199 the companies, I think we we calculated eighty percent of 0:10:21.240 --> 0:10:24.080 them have cat net cash from the balance sheet free 0:10:24.080 --> 0:10:27.080 cash flow yields on average seven percent. It was a 0:10:27.120 --> 0:10:31.040 sort of outstanding bargain and in that respect, I think 0:10:31.200 --> 0:10:33.000 there was a fair degree of catch up for the 0:10:33.200 --> 0:10:36.040 HS tech compared to all the other global indices in 0:10:36.080 --> 0:10:38.199 the past past two quarters. 0:10:38.280 --> 0:10:40.440 All right, Sean, thanks very much for joining us here 0:10:40.480 --> 0:10:43.160 on a holiday in our studios in Hong Kong. Sean Darby, 0:10:43.440 --> 0:10:45.839 Managing director at Mizuho Securities. 0:10:53.160 --> 0:10:57.440 Earlier today in the States, President Biden unveiled sweeping tariffs 0:10:57.679 --> 0:11:00.800 and an increase in terraffs on a range of Chinese imports. 0:11:00.800 --> 0:11:03.120 We're going to take a closer look now with our 0:11:03.160 --> 0:11:06.319 own John lu Bloomberg Executive editor, joining us from our 0:11:06.360 --> 0:11:09.600 studios in Beijing. John, it's always a pleasure. I'm going 0:11:09.640 --> 0:11:11.840 to go out on a limb and say that this 0:11:11.960 --> 0:11:15.200 really didn't go down too well in Beijing. Is that 0:11:15.240 --> 0:11:16.040 a fair statement. 0:11:16.720 --> 0:11:19.800 I think that is a fair statement. This adds additional 0:11:19.960 --> 0:11:23.920 pressure on a relationship that is already very tense, that 0:11:24.040 --> 0:11:27.640 is already full of fractious disagreements, and so this is 0:11:27.679 --> 0:11:29.640 not making things any easier in any way. 0:11:30.840 --> 0:11:33.240 John, Is it also fair to say the flip side 0:11:33.240 --> 0:11:35.959 of it, that this may be a little bit more 0:11:35.960 --> 0:11:39.400 political on both sides than it is a real teeth 0:11:39.640 --> 0:11:40.199 in the action. 0:11:41.280 --> 0:11:47.200 I think some of these tariffs were designed for maximum 0:11:47.200 --> 0:11:51.840 political advantage, and maybe not so much for the impact 0:11:51.960 --> 0:11:56.000 on the economy. For example, there are not really many 0:11:56.400 --> 0:11:59.760 Chinese electric cars being exported to the United States from China, 0:11:59.800 --> 0:12:04.959 and putting quadrupling the tariffs on those shipments is not 0:12:05.000 --> 0:12:08.400 going to have that big of an impact on bilateral trade. 0:12:08.600 --> 0:12:11.040 I think we saw something earlier when the Biden administration 0:12:11.120 --> 0:12:14.760 talked about putting additional tariffs on Chinese steel and aluminum, 0:12:15.120 --> 0:12:17.760 which the US buys very little of from China, and 0:12:17.840 --> 0:12:21.200 so a lot of this is more show than it 0:12:21.280 --> 0:12:22.640 is impact. 0:12:22.760 --> 0:12:24.960 But I'm wondering if the subtext here is what we 0:12:25.000 --> 0:12:27.800 need to be talking about, which is the issue of overcapacity. 0:12:27.840 --> 0:12:30.040 I mean, that's been right out in the open from 0:12:30.120 --> 0:12:34.120 both sides, right, not just from Treasury Secretary Yellen, but 0:12:34.200 --> 0:12:36.960 the German Chancellor all Off Schultz as well. 0:12:37.080 --> 0:12:40.400 That is a big issue because the concern is that 0:12:40.559 --> 0:12:46.200 Chinese factories are making far more than can be consumed domestically, 0:12:46.240 --> 0:12:49.280 and so the obvious answer for China when it comes 0:12:49.320 --> 0:12:51.480 to what to do with all these goods being produced 0:12:51.559 --> 0:12:55.800 is to export them. And if cutting the prices, exporting 0:12:55.880 --> 0:12:59.520 those things at a cheaper price helps to get moved, 0:12:59.600 --> 0:13:02.720 the move the product, and that is an obvious strategy, 0:13:02.720 --> 0:13:06.720 and that is something that would of course concern the Germans, 0:13:06.760 --> 0:13:10.720 the French, the Americans, lots of different markets around the world. 0:13:11.000 --> 0:13:14.080 And of course we started out with talking about China's response. 0:13:14.120 --> 0:13:16.800 We haven't seen it yet. It may amount to something 0:13:16.880 --> 0:13:20.360 quite material. It could be something directed at Tesla and 0:13:20.520 --> 0:13:24.680 companies like Apple. Have you been sort of looking at 0:13:24.720 --> 0:13:26.600 this and what are we thinking? 0:13:27.520 --> 0:13:29.400 So the Chinese have come out so far and said 0:13:29.440 --> 0:13:33.880 that they will take action to protect their rights. I 0:13:33.960 --> 0:13:36.559 think as they're trying to figure out what they should 0:13:36.600 --> 0:13:38.839 do next, they are going to have to balance a 0:13:38.920 --> 0:13:43.120 number of different factors. One, going after companies like Apple 0:13:43.240 --> 0:13:46.000 or Tesla. That's not going to be good for China's 0:13:46.000 --> 0:13:50.000 own economy because those companies are such large presences here 0:13:50.559 --> 0:13:54.920 because they employ so many people. Discouraging foreign investment in 0:13:55.040 --> 0:13:57.679 China is not going to help Hug get the economy 0:13:58.240 --> 0:14:01.320 booming again. And so he's going to have to try 0:14:01.360 --> 0:14:06.400 and find some action that is both going to appease 0:14:06.440 --> 0:14:09.240 a domestic audience which thinks that the government needs to 0:14:09.280 --> 0:14:11.679 stand up for China, but then also not shoot China 0:14:11.800 --> 0:14:12.559 in its own foot. 0:14:12.800 --> 0:14:15.559 Don't we need to also take a look at proportionality. 0:14:15.600 --> 0:14:17.480 I mean the leverages that we're talking about here from 0:14:17.520 --> 0:14:20.840 the US that covers around eighteen billion in goods for 0:14:20.960 --> 0:14:24.240 an eighteen trillion dollar economy, So this is literally a 0:14:24.320 --> 0:14:25.160 drop in the bucket. 0:14:26.360 --> 0:14:28.920 Well, I think the Chinese will take that into consideration, 0:14:29.040 --> 0:14:32.760 and I think there is a lot of mutual understanding 0:14:32.800 --> 0:14:36.680 that ahead of this year's presidential election in the United 0:14:36.720 --> 0:14:39.560 States that the rhetoric coming out of Washington is going 0:14:39.600 --> 0:14:43.480 to be more heated than normal. And I think also 0:14:43.520 --> 0:14:45.960 factoring into this is, of course the other candidate in 0:14:46.000 --> 0:14:49.880 the race, former President Trump, and some of the more 0:14:49.960 --> 0:14:55.160 aggressive tariffs that he's talked about taking or putting into 0:14:55.200 --> 0:14:57.920 place if he were elected president. So there's a number 0:14:57.920 --> 0:14:58.840 of things in play here. 0:14:59.400 --> 0:15:02.600 John. Obviously, trade is a big issue for China, but 0:15:02.680 --> 0:15:05.920 Taiwan is probably the biggest issue. And we have William 0:15:06.000 --> 0:15:10.120 Lai to be inaugurated next week as president. He supports 0:15:10.120 --> 0:15:12.000 the status quo, but he's always kind of leaned a 0:15:12.080 --> 0:15:15.480 little bit toward Taiwan independence. He calls himself a pragmatic 0:15:15.520 --> 0:15:20.000 worker for Taiwan independence. Should we be concerned that Taiwan, 0:15:20.200 --> 0:15:24.120 the economy, semiconductors, everything may get a little bit of 0:15:24.160 --> 0:15:28.560 a downgrade going forward as a result of that tricky relationship. 0:15:29.120 --> 0:15:33.040 So I think Taiwan is definitely the most dangerous, dangerous 0:15:33.160 --> 0:15:36.040 flashpoint in this relationship between the United States and China. 0:15:36.120 --> 0:15:40.720 Whether William Laie's ascendence to the presidential office will be 0:15:40.840 --> 0:15:44.280 the spark that sets off some sort of conflict, I 0:15:44.280 --> 0:15:47.520 think that looks relatively unlikely at the moment. We are 0:15:47.680 --> 0:15:52.200 expecting him to stick to the line from the previous 0:15:52.200 --> 0:15:54.920 administration of Taiing I. He has said that publicly he 0:15:55.080 --> 0:15:59.200 plans to be a continuity president of anything. I think 0:15:59.280 --> 0:16:02.640 the speech that he will be giving his inauguration will 0:16:02.680 --> 0:16:07.080 be tuned to try and both show him and his 0:16:07.120 --> 0:16:10.480 party is defending Taiwan, but also not to cause any 0:16:10.640 --> 0:16:12.480 upsetness in Beijing or Washington. 0:16:12.880 --> 0:16:14.760 John, it's always a pleasure. Thank you so much for 0:16:14.800 --> 0:16:16.560 making time to chat with us. Covered a lot of 0:16:16.600 --> 0:16:20.120 ground there with John Lou Bloomberg executive editor in Beijing. 0:16:27.360 --> 0:16:30.240 We go to China next. And those big earnings reports 0:16:30.240 --> 0:16:32.720 that we have been waiting for ten Cent Holdings, on 0:16:32.720 --> 0:16:36.080 one hand, reported better than expected earnings, a sixty two 0:16:36.160 --> 0:16:39.640 percent surge. Okay, so that's the good news. On the 0:16:39.680 --> 0:16:42.400 other hand, Ali Baba with a plunge and profit. We're 0:16:42.440 --> 0:16:46.800 talking about net income tumbling eighty six percent. That's after 0:16:46.880 --> 0:16:51.479 an unexplained write down for losses in Baba's publicly traded holdings. 0:16:51.840 --> 0:16:54.560 There was a little bit of commonality though, among these 0:16:54.600 --> 0:16:57.480 two giants. Both ten Cent and Ali Baba reported better 0:16:57.520 --> 0:17:02.120 than expected revenue growth, although it was in the single digits. However, 0:17:02.160 --> 0:17:04.560 there was divergence when you look at the share prices 0:17:04.800 --> 0:17:07.679 here in New York. The ADRs and ten Cent up 0:17:07.680 --> 0:17:10.840 about four point seven percent, but the ADRs and Baba 0:17:10.920 --> 0:17:12.480 were down six percent. 0:17:12.640 --> 0:17:16.360 Brian Well joining us now to discuss this as Lad Savov, 0:17:16.359 --> 0:17:19.080 Bloomberg Tech editor, who is looking very closely at the 0:17:19.119 --> 0:17:22.240 ten Cent and Baba earnings and was on our blog, 0:17:22.640 --> 0:17:25.480 really getting to all the comments as they came. Vlad, 0:17:25.720 --> 0:17:28.639 nice to have you with us in our studios. Let's 0:17:28.680 --> 0:17:31.480 start off with Ali Baba first, because one of the 0:17:31.480 --> 0:17:34.840 things that we observed over the past many, many weeks 0:17:34.960 --> 0:17:37.720 was that Ali Baba faces a lot more stiff competition 0:17:37.760 --> 0:17:40.200 at the moment than ten Cent does, and so ten 0:17:40.240 --> 0:17:42.640 cents earnings had to beat and we can talk about 0:17:42.680 --> 0:17:44.960 that too. But Ali Bab a couple of things. Doug 0:17:45.040 --> 0:17:49.240 mentioned one that basically there was some unexplained losses in 0:17:49.280 --> 0:17:52.760 its holdings of public companies, and that's one thing, but 0:17:52.800 --> 0:17:55.399 it also had to spend more to fight off the 0:17:55.440 --> 0:17:57.480 competition and it was costly. 0:17:57.840 --> 0:18:00.600 Absolutely, Brian, and I think you got to exactly right. 0:18:00.640 --> 0:18:04.280 Ali Baba's competitive landscape is so different from ten cents. 0:18:04.320 --> 0:18:05.080 In years past. 0:18:05.119 --> 0:18:07.440 It used to be that Ali Baba was the big 0:18:07.480 --> 0:18:09.960 dog in e commerce and in the same way that 0:18:10.080 --> 0:18:13.160 ten Cent is with games publishing, and ten Cent situation 0:18:13.359 --> 0:18:16.000 is still the case. It's still the world's biggest games publisher. 0:18:16.640 --> 0:18:18.560 He's the biggest by far in China. It one has 0:18:18.600 --> 0:18:21.240 Netty's to compete with, whereas Alibaba. On the other hand, 0:18:21.280 --> 0:18:24.360 you have by Dance coming in, you have PDD. Everyone 0:18:24.600 --> 0:18:27.360 is getting into its turf. So one of the things 0:18:27.359 --> 0:18:31.160 that stood out from Ali Baba's announcement was they mentioned, 0:18:31.800 --> 0:18:34.800 with respect to Timo and Talbau price competitive. They mentioned 0:18:34.840 --> 0:18:36.919 a couple of times in their announcements. So really what 0:18:36.960 --> 0:18:39.679 they're saying is it costs us money to compete. These 0:18:39.760 --> 0:18:42.120 guys are undercutting us, so we need to undercut them back. 0:18:42.640 --> 0:18:45.240 You know, sometimes the candy. I mean, at least these 0:18:45.359 --> 0:18:49.080 days for the market has been any mention of artificial intelligence. 0:18:49.560 --> 0:18:53.560 Where do Baba and Tencent come down? Visa VI you 0:18:53.600 --> 0:18:56.240 know this move into AI, right. 0:18:56.080 --> 0:18:58.760 That's another commonality for both of them. They consider AI 0:18:58.840 --> 0:19:02.240 a central pillar. Now the detail is where it becomes interesting, 0:19:02.320 --> 0:19:04.480 and we don't have enough to EATA from either company. 0:19:04.480 --> 0:19:05.919 I mean, one of the things that Ali Baba has 0:19:05.920 --> 0:19:07.800 mentioned for a couple of quarters now is that they 0:19:07.800 --> 0:19:11.960 will deploy generative AI to help make its e commerce 0:19:12.040 --> 0:19:12.680 more appealing. 0:19:13.200 --> 0:19:16.240 I don't see how that's happening. I mean, these are 0:19:16.320 --> 0:19:17.320 two very different things. 0:19:17.320 --> 0:19:20.840 Generaty of AI is something that's still very nascent, very early, 0:19:20.880 --> 0:19:23.000 and nobody's really figured out exactly how to deploy it. 0:19:23.240 --> 0:19:27.879 Whereas e commerce there are proven ways to entice people 0:19:28.400 --> 0:19:30.080 to buy stuff. And actually at the moment, the thing 0:19:30.119 --> 0:19:32.000 that's really doing it is short video is stuff like 0:19:32.040 --> 0:19:34.359 TikTok and dowy in and that's the thing that Tencent 0:19:34.400 --> 0:19:37.119 is leaning into with wechair and it's we chat video. 0:19:37.480 --> 0:19:39.960 So one of the big figures that Tencent reported is 0:19:40.000 --> 0:19:42.960 eighty percent growth. Can use the time spent in we 0:19:43.080 --> 0:19:45.320 chat video accounts and what really that says we chat 0:19:45.359 --> 0:19:47.680 vide account. You can equate that to ten cents TikTok. 0:19:48.280 --> 0:19:50.280 The more people use in that service, the more that 0:19:50.440 --> 0:19:54.000 ten Cent commnetize, the more it can introduce e commerce opportunities. 0:19:54.200 --> 0:19:57.040 So, in other words, we should not read that twenty 0:19:57.080 --> 0:20:00.399 six percent rise in ad sales by ten Cent. We 0:20:00.480 --> 0:20:02.920 probably shouldn't take that as a good barometer on the 0:20:03.000 --> 0:20:06.280 Chinese economy. It's more like the algorithm. It's more like 0:20:06.320 --> 0:20:09.600 what they're doing to attract and keep Wi Chat users 0:20:09.800 --> 0:20:11.160 with those short form videos. 0:20:11.400 --> 0:20:12.119 That's right, Brian. 0:20:12.520 --> 0:20:14.600 If you want to flatter a Tencent for their execution, 0:20:14.680 --> 0:20:15.480 you're free to do that. 0:20:15.880 --> 0:20:17.520 But I think you're right. I think you're correct. 0:20:18.359 --> 0:20:20.480 Well, I was going to flatter you by saying you're 0:20:20.520 --> 0:20:24.000 the big dog looking at these big tech companies. 0:20:24.240 --> 0:20:25.480 Well, here's the thing. 0:20:26.320 --> 0:20:29.760 Ali Baba's chairman, Joe Zie He said that the company 0:20:29.800 --> 0:20:33.080 is seeing positive signs of the Chinese consumer being willing 0:20:33.119 --> 0:20:36.160 to spend. Again, that was not the same sentiment coming 0:20:36.200 --> 0:20:39.000 out of Tencent. Martin Laud, the president of Tencent. He 0:20:39.119 --> 0:20:42.320 said that the Chinese economy is mixed, and therefore the 0:20:42.359 --> 0:20:46.760 advertising landscape necessarily is also mixed. So ten Cent itself 0:20:46.840 --> 0:20:48.600 is taking the credit for this as well. They're saying 0:20:48.600 --> 0:20:51.159 that they're doing better, and they do give some credit 0:20:51.200 --> 0:20:55.200 to AI helping them optimize ads on and other platforms. 0:20:55.240 --> 0:20:57.719 So when you're a company like Ali Baba Vlad and 0:20:57.760 --> 0:21:01.040 you're struggling, is the remedy, at least in the short 0:21:01.119 --> 0:21:04.240 term stock buyback? Is that enough to kind of get 0:21:04.280 --> 0:21:06.240 the market a little enthused? 0:21:07.440 --> 0:21:10.040 Well, Brian said it. I mean, you said it yourself. 0:21:10.119 --> 0:21:13.360 The stock market is not reacting positively. They did announce 0:21:13.359 --> 0:21:14.200 a four billion. 0:21:13.960 --> 0:21:15.920 Dollar buyback, so everyone is quite serious. 0:21:16.000 --> 0:21:19.360 One of the really interesting things across the tech ecosystem, 0:21:19.640 --> 0:21:21.959 no matter the geography, is that everyone's doing a buyback 0:21:22.040 --> 0:21:24.680 right now. We're talking Sony in Japan, Ali Baba, Tense 0:21:24.840 --> 0:21:29.600 has one in ongoing. Apple announced the world's biggest buyback 0:21:29.640 --> 0:21:32.480 ever Google Meta. Everyone is doing it right now because 0:21:32.480 --> 0:21:35.040 they have been sitting on these big cash piles and 0:21:35.280 --> 0:21:37.879 at the same time as they investing heavily in AI. 0:21:37.920 --> 0:21:39.720 And this is true both for Tense and Ali Baba. 0:21:40.800 --> 0:21:42.880