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Speaker 1: Let's get to John Woods. John is our guest for

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Speaker 1: the next segment. He is the Asia Pacific ce io

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Speaker 1: at Credit Suite, and he happens to be in our

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Speaker 1: studio in Hong Kong. John, it's always a pleasure. I

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Speaker 1: got to talk about this pivot on the part of

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Speaker 1: authorities in China to kind of change the narrative when

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Speaker 1: it comes to the zero COVID policy and the price

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Speaker 1: action has been stunning. Is this necessarily people now betting

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Speaker 1: on a recovery or is it nothing more than shortcovering

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Speaker 1: and that we've got a really, really tough road ahead

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Speaker 1: for China. I think a little bit of both. I

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Speaker 1: think the way that you phrase the question was correct.

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Speaker 1: The narrative absolutely has changed, particularly among investors, but on

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Speaker 1: the ground, I'm not convinced the reality has substantially changed.

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Speaker 1: I mean, I can share with you, for example, anecdotally,

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Speaker 1: that Credit Swite office in Beijing is running out about

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Speaker 1: ten percent occupancy. There's no meaningful sign yet of a

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Speaker 1: reopening uh menstruate with the sharp rally that we've seen,

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Speaker 1: for example in uh in the A share and even

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Speaker 1: the MSCI China Index, there's a lot of hope and

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Speaker 1: expectation certainly built into this large rally, perhaps the markets

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Speaker 1: looking forward six months, nine months, possibly even twelve months.

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Speaker 1: But for now we see a reasonably restricted operating conditions

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Speaker 1: on the ground in China that will clearly impact essentially

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Speaker 1: growth outlook, corporate revenues. And so my sense is the

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Speaker 1: market's got a little head of itself on this occasion.

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Speaker 1: Joy a little more specific because you say that it

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Speaker 1: hasn't started to really reopen on maybe of your staff

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Speaker 1: in the office. Is that because they don't want to

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Speaker 1: go back to work. Is that because they'll get they're

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Speaker 1: afraid they'll get harassed by Chinese authorities and it's not

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Speaker 1: clear how much they can move around. UM, is it

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Speaker 1: going to take time for the expectations to change. Well, this, uh,

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Speaker 1: this occupancy rate is deemed appropriate by our internal management.

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Speaker 1: But it's not just the CS office actually, UM, pretty

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Speaker 1: much every other office in the in the region has

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Speaker 1: a similar occupancy rate. So so this is just consistent

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Speaker 1: right now with the levels and practice of COVID restriction.

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Speaker 1: What I'm trying to say is that the market has

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Speaker 1: priced in a substantially more aggressive an optimistic outlook which

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Speaker 1: is not yet reflected in the ground. I think the

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Speaker 1: market has got ahead of itself. By the way, that's

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Speaker 1: also consistent with a lot of cross asset global trends

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Speaker 1: as well. We've seen meaningful decline in the US dollar

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Speaker 1: index and a substantial increase in risk appetite in developed markets.

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Speaker 1: So actually China's rally is pretty much consistent with a

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Speaker 1: risk on momentum globally. But I have a feeling, given

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Speaker 1: conditions on the ground, we've somewhat got ahead of ourselves.

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Speaker 1: One of the things we've also been talking about the

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Speaker 1: news today. You know, Apple was at a semiconductor manufacturing

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Speaker 1: facility that's being constructed in Arizona. T SMC is really

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Speaker 1: driving this um. Are you concerned about the degree to

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Speaker 1: which Western businesses that have set up production facilities in

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Speaker 1: China may begin to say, you know what, we just

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Speaker 1: have very little faith in the government now. We don't

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Speaker 1: know where they stand. Some of the responses to extreme

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Speaker 1: conditions like COVID are draconian, and we have to rethink

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Speaker 1: our strategy. I think that is going to become a

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Speaker 1: secular trend over the next five, ten, and potentially longer

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Speaker 1: year timeframe. I think companies require consistency, reliability, and the

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Speaker 1: ability from a supply chain logistic perspective to deliver goods

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Speaker 1: when they say they will, and when there are factors

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Speaker 1: that are unavoidable or difficult to manage, then of course

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Speaker 1: that that puts that insistency at risk. And so what

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Speaker 1: we are seeing as a focus on supply chain security,

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Speaker 1: I think more from a delivery perspective, which is encouraging

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Speaker 1: reshoring offshoring companies moving, particularly around the Southeast Asia region.

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Speaker 1: I suspect that Vietnam is a major beneficiary of that.

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Speaker 1: But when you also incorporate just this substantial rise in costs,

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Speaker 1: particularly on the coastal periphery in China, what may interest

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Speaker 1: you is that a large part of that offshoring is

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Speaker 1: actually driven by Chinese companies. Chinese companies are actually major investors,

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Speaker 1: for example in Vietnam, simply because labor costs are cheaper

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Speaker 1: and therefore the manufacturing site becomes a little more productive

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Speaker 1: and profitable. So actually that there's a complexity to uh this,

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Speaker 1: uh this this discussion. But to answer your question, absolutely,

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Speaker 1: I would anticipate more and more companies now reshoring relocating

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Speaker 1: from China, much to do with the ability to deliver

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Speaker 1: on on as as committed, but also to do with

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Speaker 1: costs not abolishness. Now on Asia as a place to

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Speaker 1: invest given the uncertainties and limitations in for you know,

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Speaker 1: for investing in U s, darks and bonds. Uh, China's

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Speaker 1: growth how how how quickly does it rebound or is

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Speaker 1: it you know, is it going to continue to lad?

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Speaker 1: The latest China Beige book from Leabland Leland Miller for

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Speaker 1: the month in November show just you know, downturns across

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Speaker 1: the board, every indicator, every industry. Um well, that's I

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Speaker 1: think consistent also with our view as well. Um you know,

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Speaker 1: we have the trade data out for China. Shortly, I

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Speaker 1: would expect to see actually quite a meaningful contraction in

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Speaker 1: the trade balance, which clearly is a negative from a

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Speaker 1: growth perspective, because most gross most most growth forecast to

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Speaker 1: a factor in an anticipate something of a boost from

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Speaker 1: the external the external account. But if we do start

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Speaker 1: to see some reopening in China at the margin, I

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Speaker 1: would anticipate import demand to improve. And at the same

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Speaker 1: time as we see growth slowing down and goods demand

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Speaker 1: decelerating in the West, you would get that sort of

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Speaker 1: double whammy effect on the trade balance. And we would

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Speaker 1: anticipate it to diminish in terms of growth. We start that.

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Speaker 1: We we expect China will go around three this year,

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Speaker 1: which is an extraordinarily low growth target, that will accelerate

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Speaker 1: somewhat to around four four and a half percent next year.

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Speaker 1: But that's as much to do with the base effect,

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Speaker 1: I think then anything else. China clearly is on a

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Speaker 1: substantially lower growth trajectory than it was five even five

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Speaker 1: years ago. And and that I think and reflects this

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Speaker 1: UH services UH and consumption driven growth at Focus initiative

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Speaker 1: that the government is promoting UM and if, if, if

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Speaker 1: there is to be some sort of boost to that,

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Speaker 1: it'll have to come I think from the property sector.

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Speaker 1: It'll be the property sector and perhaps more UM conducive

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Speaker 1: and supportive policies by the authorities to to to promote

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Speaker 1: that side of the business that will be the main

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Speaker 1: key to the growth outlook. John, thank you so much.

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Speaker 1: It's ironic that the property sector, which helped tear the

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Speaker 1: economy down last year, could help lead it ahead. John Widge,

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Speaker 1: as a Pacific CEO at Credit Swiz, thank you for

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Speaker 1: joining us. This is Daybreak Asia, this is Bloomberg