Speaker 1: Our guest is Larry Who, head of China Economics at
Speaker 1: McQuary Group. Larry, lots of time to talk about China
Speaker 1: and the Asia Pacific, but I do want to ask
Speaker 1: you about these comments from FED officials. And I don't
Speaker 1: think we want to make too much of it, but
Speaker 1: they're talking about, you know, being somewhat concerned about what's
Speaker 1: happening globally, and they also, uh you know, are saying
Speaker 1: that they they're concerned about financial conditions. Could there be
Speaker 1: one reason why we're seeing a little bit of a
Speaker 1: let up in some of the risk off tone in markets. Yes,
Speaker 1: I definitely I think now, you know, as a as
Speaker 1: Antina economist, you know, for China faced a lot of uncertainties,
Speaker 1: but of course on the FED hiking cycle under the Titan,
Speaker 1: the financial condition globally definitely is a head wind of
Speaker 1: faced by China today, which gonna you know, I want
Speaker 1: hand the impact the market, the risk epetite. Also you're
Speaker 1: not going to impact China exports later on. What is
Speaker 1: happening to is this very strong dull and that is
Speaker 1: fading through into Asian currencies. We got do you want there?
Speaker 1: A fourteen year low inviting more aggressive pushback from authorities
Speaker 1: in China. What are you expecting to say from the
Speaker 1: central bank? Uh? Well, you know, I would say so
Speaker 1: far that intervention has been pretty mild because the weakness
Speaker 1: of UN is mainly driven by the strong dollar. If
Speaker 1: you look at the UN against a basket of currency,
Speaker 1: it has remained pretty steady so far this year. But
Speaker 1: of course, you know, if you are in the UN
Speaker 1: continue to weaken, we're probably going to see more intervention,
Speaker 1: more powerful intervention from policy makers. You know. For for instance,
Speaker 1: they can roll out, they can use the so called
Speaker 1: counter cyclical factor, which means that you know, fixing because
Speaker 1: the daily fixing a bitter stronger than usual to send
Speaker 1: the market a very strong signal that PBOC one uh
Speaker 1: no a step a stable UN instead of a sharper depreitiation.
Speaker 1: So this has been a really strong risk off market.
Speaker 1: There's a couple of huge pivots that are out there,
Speaker 1: um that will happen at some point, but when we
Speaker 1: don't know. One is China perhaps easing up on COVID zero.
Speaker 1: Maybe the experiment that we see in Hong Kong is
Speaker 1: is a forerunner to that. And the second big pivot
Speaker 1: would be that the Fed says, Okay, we can take
Speaker 1: a pause here. Which of those two do you think
Speaker 1: happens first? And about when? Well, that's a that's a
Speaker 1: very hard to connect. The vailability is pretty it is
Speaker 1: pretty low. But our house view is that um, the
Speaker 1: FED probably gonna pause um in first quarter next year
Speaker 1: and probably you know, given the US economy slow down quickly.
Speaker 1: On the for China side, my base case is that
Speaker 1: we're going to see some gradually losing in zero COE
Speaker 1: policy after the Party Congress. Uh no China and likely
Speaker 1: to live with the COVID overnight. Which but but I
Speaker 1: think they still can you know, losing a beta on
Speaker 1: the margin, you know, regarding the current zero COVID policy.
Speaker 1: And I actually I think there there is a certain
Speaker 1: payor could happen, which means that the China could China
Speaker 1: policy action means policy easy and could have been more decisive. Larry,
Speaker 1: we've been talking about a lot of the headwinds that
Speaker 1: the China economy is facing. And we know about property,
Speaker 1: we know about COVID. You're also saying the population and
Speaker 1: the aging population is something we should be watching closely. Uh, Well,
Speaker 1: that's more about the long term structural thing, right, so
Speaker 1: I would say the long term structural easier for China
Speaker 1: is I think the two biggest one is that, as
Speaker 1: you said, one is the aging population and the other
Speaker 1: is where the China could have moved into a new
Speaker 1: growth model which less driven by investment. Right. But I
Speaker 1: would say the cyclical part, as you mentioned, mainly from
Speaker 1: the zero COVID side. On property side, Larry, we talked
Speaker 1: about the Macau opening a little bit yesterday. Yeah, it's
Speaker 1: not a huge thing, but announcing that group tours would
Speaker 1: be um would be facilitated as soon as November, and
Speaker 1: although it may not affect the casino names themselves, so
Speaker 1: those stocks rebounded. So I know you're an economist. I
Speaker 1: only mentioned that because it shows you that people, investors,
Speaker 1: everybody is waiting on some sign that we're going to
Speaker 1: get some loosening. Now. I know that you're thinking that
Speaker 1: COVID zero it's impossible for them to change that. They
Speaker 1: can do other things like they did with Macau. Are
Speaker 1: you looking for other measures to really increase the animal
Speaker 1: spirits in China? Yeah, definitely. I would say that I
Speaker 1: think that they're gonna change zero COVID one day, but
Speaker 1: they're just in a gradual way, right, in the sense
Speaker 1: that the Chinese is not going to live with the
Speaker 1: COVID overnight because it takes a lot of more to
Speaker 1: towards that, for instance at the East, and there's some
Speaker 1: changing p and the tone, right, But I do think
Speaker 1: that you know, as you said, um, some loosening in
Speaker 1: zero COVID is very important to the animal spirit because
Speaker 1: that's closely related to the consumption side in China, and
Speaker 1: you know, consumption accounts for fifty of China economy. That's
Speaker 1: a big and so far this year it has no growth. Right,
Speaker 1: that's a big drag to the Chinese economy. That's not
Speaker 1: likely to really change the needle until next year, though,
Speaker 1: what are your forecast for three when we see the
Speaker 1: likes of Goldman slashing there forecasts for China's growth, Well,
Speaker 1: at this moment, I expect trying to grow fivepon five
Speaker 1: percent for next year. I think in large part because
Speaker 1: the base this year is very low, and I think
Speaker 1: of trying to could do more in losing zero COVID
Speaker 1: policy to boost the consumption and do more to support
Speaker 1: the property sector. But of course for next year, the
Speaker 1: vliability is pretty low. It really depends on what are
Speaker 1: they gonna do after the Party Congress. Yeah, the Party
Speaker 1: Congress coming up, and a story that we haven't really
Speaker 1: talked about too much, but I think it's something we
Speaker 1: need to at least raise today and perhaps with you
Speaker 1: as best. She jumping hasn't been seen in public for
Speaker 1: about ten days or so. Any significance at all, Well,
Speaker 1: I don't have strong in insight sound on this cue,
Speaker 1: and we're probably we're going to continue to watch why
Speaker 1: he gonna appear again and looking to to the Party Congress.
Speaker 1: I mean you've mentioned what you think could potentially be
Speaker 1: a little bit of an easy in some of those
Speaker 1: dynamic zero COVID zero policies. What else is is really
Speaker 1: needed in terms of a tangible move here we mentioned
Speaker 1: the property sector, but just really trying to bring the
Speaker 1: economy up. Well, I think what what really needed at
Speaker 1: this moment of two things. Why is zero COE policy
Speaker 1: which related to consumption, and the other is I will
Speaker 1: say probably an escalation of policy stimulus from here right
Speaker 1: so far this year you will give the downward pressure
Speaker 1: we do see. You know, China policy makers throw out
Speaker 1: the more and the more policy easing, but so far
Speaker 1: they have largely played catch up instead of be pretty
Speaker 1: very proactive. It's it's pretty it's a bit different from
Speaker 1: what they did in the past, right So I so,
Speaker 1: so I would think that after the Party Congress, probably
Speaker 1: they're going to have the time under the freedom and
Speaker 1: to do more in terms of policy easing from here. Yeah.
Speaker 1: We even our headline from Bloomberg Intelligence is that the
Speaker 1: Communist Party Congress is limited a little bit by the FEDS.
Speaker 1: So let me ask you a question I posed before
Speaker 1: the break. What's the FED going to break next? Uh?
Speaker 1: Give you three choices? Okay, Basically what's looming is corporate
Speaker 1: earnings and secondly jobs and then the U. S economy itself.
Speaker 1: Uh well, no, I don't. I don't really have no
Speaker 1: strong insights on the US economy, so probably I cannot
Speaker 1: give you the exact an answer. But for me, I
Speaker 1: think of for China probably under the main impact is
Speaker 1: on exports. So I think in the next six to
Speaker 1: twelve months, is Tchina exports going to continue to trend down? Alright?
Speaker 1: Great to have you with us. Larry Larry who head
Speaker 1: of China Economics at McQuary Group in our Hong Kong
Speaker 1: studio alongside Brian