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Speaker 1: Beijing will unveil a litany of economic indicators that will

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Speaker 1: likely determine the pace of monetary and fiscal stimulus for

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Speaker 1: the remainder of the year. Let's preview these figures now

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Speaker 1: with Way Yao, head of Research also the chief economist

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Speaker 1: for the APAC Region Associate A general c I B. Way,

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Speaker 1: thanks for being with us. How bad do you think

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Speaker 1: these numbers are going to be? Well, the we're expecting

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Speaker 1: the Q two GDP growth to slide to something around

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Speaker 1: two percent, which will imply at one point five percent

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Speaker 1: que and que contraction. But I guess maybe you carry

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Speaker 1: more information. More timely information would be the June data,

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Speaker 1: which probably hopefully will show that the colonic recovery was

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Speaker 1: picking up paces. So we're expecting a bit of a

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Speaker 1: week read a sharp slow down. But when you look

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Speaker 1: at the choices faced by China here, when you've got

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Speaker 1: stimulating growth or pursuing COVID zero, one of these two

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Speaker 1: goals has got to give. Surely, Well, they're trying very

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Speaker 1: hard to balance these goals, but you're right, it's it's

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Speaker 1: very very challenging. Uh what no one else has fined

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Speaker 1: the balance? But just you know, living with COVID, but

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Speaker 1: China still trying UM and in early July we're seeing

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Speaker 1: you know, this UM, this balancing is a little bit

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Speaker 1: of wobbling again with cases flare up. So we could

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Speaker 1: continue to face this pressure from zero COVID on the economy.

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Speaker 1: And we do think, you know, things like consumption is

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Speaker 1: unlikely to have a proper recovery and to zero covides

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Speaker 1: behind what about the property market? I think we're going

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Speaker 1: to get some data at the bottom of the hour.

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Speaker 1: Are you confident that the property market on the mainland

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Speaker 1: has put in somewhat of a floor or a bottom.

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Speaker 1: That is actually our main concern right now. In the

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Speaker 1: second half the recovery, the biggest, the most important factor

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Speaker 1: is going to be housing. It's assuressing almost assussing that

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Speaker 1: infrastructure can come back because of all the money governments

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Speaker 1: throughout it, but housing still hinges on the confidence of

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Speaker 1: China's household sector and which is very weak right now.

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Speaker 1: And not to mention, housing was at a pretty bad

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Speaker 1: place already before the zero COVID policy UM resulted in lockdown,

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Speaker 1: and we're seeing all these stress on the developers. So

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Speaker 1: it's it's it's at a pretty critical moment. Right now,

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Speaker 1: we've also got a mortgage payment boycott and parts of China.

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Speaker 1: How serious a risk is this? So if we just

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Speaker 1: look at you know, the scale of the mortgage non

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Speaker 1: payments as it is right now, it's not systemic, right.

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Speaker 1: But the concern is we can get a vicious circle

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Speaker 1: that if the households stopped paying um buying pre sale properties,

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Speaker 1: that will leads to further string on the developers and

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Speaker 1: who are not going to build more housing, and that's

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Speaker 1: going to drag the economic growth. That's the concern here

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Speaker 1: and why among the pieces of data we're anticipating out

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Speaker 1: of China at the top of the RS retail sales

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Speaker 1: expecting to see a slight rebound from negative territory there,

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Speaker 1: what are we knowing about the health of the Chinese consumer. Well,

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Speaker 1: the retail sales is likely to see a slight positive

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Speaker 1: maybe just escaping the contraction in June. UM. But there

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Speaker 1: is an element of pent up demand here as people

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Speaker 1: people in Shangham, Beijing got out of lockdown, um. But

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Speaker 1: the underlying strengths of the consumption it doesn't seem to

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Speaker 1: be too well um there. It's it's for obvious reason

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Speaker 1: now that the confidence is probably not far from fully restored,

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Speaker 1: as the zero COVID policy still in place and the

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Speaker 1: income prospects, the job prospects are still pretty lack luster

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Speaker 1: to say the least, so we were not expecting the

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Speaker 1: consumption to do spectatically well from here. Um, this could

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Speaker 1: be the last sector to recover properly in the in

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Speaker 1: the economy. So I'm want to go back to a

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Speaker 1: point that I just made when he was talking about

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Speaker 1: Premier League Chang highlighting the risk of imported inflation. To

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Speaker 1: what extent could this be a major headwind for the economy.

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Speaker 1: We're not that concern about inflation in China, at least

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Speaker 1: not a demand driven one. Yes, there is important inflation

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Speaker 1: we're seeing, you know, energy prices for example, driving up CPI,

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Speaker 1: particularly in June. There is a bit of concern on

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Speaker 1: the park prices, but by enlarge, the demand in domestic

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Speaker 1: demanding China remains very, very weak. That's a very different

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Speaker 1: dynamics from that in the U S or Europe. Um

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Speaker 1: As as you know, our top concern is still more

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Speaker 1: on the gross domestic demand side. I don't think the

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Speaker 1: government should not be distracted by the STASA or if

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Speaker 1: they worried maybe use more phiscal support, more targeting measure

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Speaker 1: to support the economy. Yeah, what what are the implications

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Speaker 1: here for the p b C. We're going to see

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Speaker 1: that divergence with the developed world central banks continuing for

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Speaker 1: quite some time. We think actually the divergence probably maybe

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Speaker 1: peaking soon or now, um PBOC. If you look at

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Speaker 1: the short data rates in the in the inter bank market,

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Speaker 1: you know they have fallen so much below p BOC's

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Speaker 1: own rate seven day reverse report, which means we actually

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Speaker 1: got de facto rate cuts without PBOC announcing it. And

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Speaker 1: if anything, the PBOC may be looking to drink some

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Speaker 1: liquiity and push the short rates a little bit higher.

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Speaker 1: Um the and and also I think the p BOC

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Speaker 1: seems to be reluctant to deliver more headline rate cuts

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Speaker 1: to m E F ray for example or triple r

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Speaker 1: um is to avoid appiling more depreciation pressure on the currency.

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Speaker 1: So maybe we're seeing very much the end of the

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Speaker 1: PBOC headline action. Yeah, you just kind of read my

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Speaker 1: mind here, because we have now in the Bloomberg terminal

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Speaker 1: indication that the p BOC has kept the one year

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Speaker 1: MLF rate unchanged at two eight five. I don't think

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Speaker 1: it's a missed opportunity, but maybe we see a change

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Speaker 1: of heart down the road and the kind of the

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Speaker 1: p BOC must provide a little bit more accommodation. Based

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Speaker 1: on everything we've been describing, it's possible. Yes, yes, I think, Um,

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Speaker 1: if the PBOC has to do something, they need to

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Speaker 1: lower them a life. But we have sense so much hesitation.

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Speaker 1: Maybe we need worst data to convince them that the

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Speaker 1: importance of m M A f ray is that if

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Speaker 1: you lower that one, the loan prime rates can be

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Speaker 1: lowered as well. That would be a more direct way

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Speaker 1: to lower the funding costs, lowering costs in the real economy,

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Speaker 1: especially for the housing sector. So that we think is

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Speaker 1: actually still necessary. Just Chinese credit market look to you

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Speaker 1: at the moment, Uh not good. Um. The developer, well,

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Speaker 1: we know the problems in the developer sector. You know,

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Speaker 1: nearly all the private developers have either defaulted or close

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Speaker 1: to defaulting, and now we're seeing spill over to the

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Speaker 1: investment grades segment at leasting offshore. That's all telling us. Uh,

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Speaker 1: you know, the liquid conditioned credit condition in the economy

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Speaker 1: remains pretty dire, and the government needs to do something

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Speaker 1: to help all right, way yeah, We will leave it there,

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Speaker 1: but thanks so much for joining us on the Bloomberg

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Speaker 1: Daybreak Asia. Way Yeah, is head of research and chief

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Speaker 1: Economists for the Agia Pacific and Society General c I. B.