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Speaker 1: Let's get to our studios in Hong Kong. Zerlina's n

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Speaker 1: joins us. She is senior credit analyst at Credit Sites.

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Speaker 1: We're going to take a look at what's happening in

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Speaker 1: China as it relates to the property crisis or Lena,

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Speaker 1: thank you so much for being with us. It was

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Speaker 1: a little more than a week ago that we we

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Speaker 1: had on Beijing unveiling the package uh kind of multi

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Speaker 1: pronged approach here to try to help with the meltdown

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Speaker 1: that we've been seeing in the property market in China.

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Speaker 1: Do you think this is or will be enough to

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Speaker 1: to kind of remedy the situation? Um So, I think

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Speaker 1: the latest easy measures are really clear positive signaling that

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Speaker 1: these top leaders are very much aware of the severity

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Speaker 1: of the property downturn and they're trying to do something

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Speaker 1: about it. Um But we think the measures are unlikely

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Speaker 1: to immediately boost home buy your sentiments, and we think

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Speaker 1: property sales and are likely to improve immediately. This is

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Speaker 1: really because the banks are still very reluctant to extend

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Speaker 1: liquidity to property developers. They were likely only help out

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Speaker 1: the high quality ones and for the home buyers with

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Speaker 1: so many incomplete homes and the folding secondary housing prices. UM.

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Speaker 1: I think the buyer sentiment is not so great at

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Speaker 1: the moment still, so I'm trying to understand here whether

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Speaker 1: the aim is to address a critical component of the

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Speaker 1: overall macro economy in China, which is to say that

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Speaker 1: real estate contribute so much to economic growth. Until that

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Speaker 1: engine is firing well, the growth is going to be lackluster,

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Speaker 1: or whether the problem really goes to the financial system,

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Speaker 1: and whether the banks have so many non performing loans

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Speaker 1: and so much stress on their loan books or on

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Speaker 1: their balance sheets that Beijing had no choice but to

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Speaker 1: try to supply a little support to the financial community.

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Speaker 1: Which one is it or is it a combination of both? UM.

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Speaker 1: I tend to think this is more the first one.

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Speaker 1: I think the policymakers are trying to manage the tell

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Speaker 1: risk of the macro economy. As you said, this is

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Speaker 1: about thirty percent of China's GDP, so they are trying

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Speaker 1: to contend this contagion risk into other upstream and downstream sectors. UM.

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Speaker 1: If you look at the regulation, it's also about extending

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Speaker 1: credit to a lot of the suppliers and into other

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Speaker 1: privately owned enterprises. I think right now China's banking system,

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Speaker 1: in terms of capital adequacy, it is still much better

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Speaker 1: than back in the last banking crisis in the ninety nineties. UM,

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Speaker 1: but I think the pressure is building. UM. By extending

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Speaker 1: more credit to especially some of the lower quality developers,

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Speaker 1: this is putting additional pressure on banks balance sheet, additional

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Speaker 1: pressure on non performing loan So it feels like, um,

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Speaker 1: the government is trying to tackle the first problem first.

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Speaker 1: It's interesting that you make that point about sentiment because

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Speaker 1: we have a story on the Bloomberg terminal indicating that

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Speaker 1: regulators in China have asked banks to report on their

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Speaker 1: ability to meet short term obligations. There Apparently it's been UM.

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Speaker 1: I don't want to say it's a run on the

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Speaker 1: bank necessarily, but a flood of investors withdrawal from some

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Speaker 1: fixed income products. And we've seen the mayhem and some

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Speaker 1: of the short term government bonds, sovereign bonds in China

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Speaker 1: suffering some of their steepest decline since about mid So

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Speaker 1: what are we learning from the behavior the price action

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Speaker 1: of the Chinese bond market right now? UM. I think

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Speaker 1: there's actually a quite interesting result. So because everything is

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Speaker 1: triggered actually by this policy easing and also the COVID

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Speaker 1: on opening hope. So once risk sentiment comes back a

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Speaker 1: little bit on shore, then they're selling off some of

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Speaker 1: the short term rates products and a lot of the

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Speaker 1: China rates are going up in the past week, and

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Speaker 1: that triggered the cell of a lot of the negotiated city,

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Speaker 1: a lot of the money market instrument, and that triggered

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Speaker 1: the redemption for their like triggling more rates sell off UM.

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Speaker 1: So everything is triggered actually by a policy easing. So

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Speaker 1: in a way, if we look at it a positive way,

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Speaker 1: it is better than we're having very depressed bonds UM

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Speaker 1: yield because the economy is the pred So overall, I

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Speaker 1: don't think this is going to cause a huge issue

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Speaker 1: for the banks because their balance sheets so far it's

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Speaker 1: still quite strong. They still have enough capital. I think

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Speaker 1: the other thing to notice, Chinese household savings rate is

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Speaker 1: really going up, and for the banks they have a

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Speaker 1: lot of savings on their balance sheet. And for the

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Speaker 1: government they could always maneuver the large amount of savings

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Speaker 1: UM to direct it to the areas they want to

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Speaker 1: invest in because of capital control, and these money is

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Speaker 1: not going offshore UM. But I think, um, there's probably

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Speaker 1: going to be additional pressure on the short term money

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Speaker 1: market money market instruments because the economy is improving and

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Speaker 1: the inflationary pressure is building up. I would imagine the

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Speaker 1: PBOC is also getting a bit concerned of the quite

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Speaker 1: fast growth of M two in the Chinese system. Okay,

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Speaker 1: but the economy may still need a little bit more stimulus.

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Speaker 1: I mean, if you look at the October data series,

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Speaker 1: I'm gonna look at the industrial production five year on

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Speaker 1: year that was disappointing, and then the retail sales was

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Speaker 1: was surprisingly weak. So it's clear that the macro view

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Speaker 1: or the macro economy needs a little bit more Where

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Speaker 1: is that going to come from? How? How is Beijing

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Speaker 1: going to stimulate the economy? Yeah, I agree with you.

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Speaker 1: I think the Chinese economy is still very fragile, especially

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Speaker 1: the property downturn is ongoing. I don't think the PC

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Speaker 1: is going to titan like and the rest of the world.

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Speaker 1: I think they're still going to keep a very loose

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Speaker 1: upon monetary stance. We still expect there might be another

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Speaker 1: triple our cut in the next two quarters. But I

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Speaker 1: think the policymakers are also realizing the transition of monetary

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Speaker 1: easing is not doing so well in the Chinese system

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Speaker 1: because of the property downturn and credit demand is weak.

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Speaker 1: So I think they're going to use a lot more

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Speaker 1: physical stimulus. Um. It's basically an old policy playbook of

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Speaker 1: infrastructure stimulus. We are seeing the momentainous building in the

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Speaker 1: past the two quarters, so this is going to be

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Speaker 1: ongoing into so very quickly in about thirty seconds or so.

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Speaker 1: If you had to identify thematically industry groups UH in

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Speaker 1: the credit space to avoid right now in China, what

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Speaker 1: would they be. Um, that's definitely still the high old

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Speaker 1: property developers, because we think the physical property market is

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Speaker 1: not coming back and the liquidity situation for most on

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Speaker 1: high old developers is going to still stay very difficult

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Speaker 1: despite the easy measures. UM. So given this, we think

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Speaker 1: the devort is going to continue in this high old segment.

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Speaker 1: Sir Lena, thank you so much for making time to

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Speaker 1: come into our studios in Hong Kong and chat with

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Speaker 1: us about the credit situation on the mainland. Or Lena

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Speaker 1: Zen is senior credit analysts at Credit Sites, joining us

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Speaker 1: here on Daybreak. Asia