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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.

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Speaker 2: You can join Brian Curtis and myself for the stories,

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Speaker 2: making news and moving markets in the APEC region. You

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Speaker 2: can subscribe to the show anywhere you get your podcast

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Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the

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Speaker 2: Bloomberg Business app. Well.

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Speaker 3: China's BYD has reported annual profit that missed analyst estimates.

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Speaker 3: Bloomberg's Juan Wong has the story from Hong Kong.

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Speaker 4: Nettagum for twenty twenty three was four point one six

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Speaker 4: billion dollars. That compares to an estimate of four point

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Speaker 4: two nine billion dollars. BYD's old just over three million

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Speaker 4: electric and hybrid vehicles last year. It overtook Tesla in

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Speaker 4: the final quarter of twenty twenty three as the world's

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Speaker 4: biggest seller of evs, but it may struggle to hold

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Speaker 4: the title early this year. That's due to seasonal factors

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Speaker 4: tied to the Lunar New Year holiday. In addition, BYD

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Speaker 4: has kicked off a second round of price cuts. It

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Speaker 4: has discounted most of its product range as it seeks

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Speaker 4: to convince drivers to switch from gas guzzling cars to

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Speaker 4: evs in Hong Kong.

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Speaker 5: Joined one Bloomberg Radio.

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Speaker 3: All right, it's eight minutes past the hour for a

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Speaker 3: little further discussion on BYD. Were joined by Linda lu

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Speaker 3: who is Bloomberg's China cars reporter. So these earnings, you know,

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Speaker 3: weren't great, but they weren't too bad. BYD reporting net

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Speaker 3: income for the full year that came in in the

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Speaker 3: middle of the forecast range. As you look at these numbers,

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Speaker 3: what stands out the most? I mean, the price war

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Speaker 3: I guess is dominating, right.

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Speaker 1: Yeah, I guess to take things into perspectives, BYD's profits

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Speaker 1: the break record for the company you know, managed to

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Speaker 1: sell also another record breaking three million vehicles last year.

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Speaker 2: So overall is.

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Speaker 1: Doing well, but obviously anothers have higher expectations for the company,

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Speaker 1: and the bottom line has been impacted by the price

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Speaker 1: war which BYD is intensifying, discounting many of its popular

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Speaker 1: models since late last year and continuing well into this year.

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Speaker 2: So when you look at a company like Tesla, to

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Speaker 2: what extent is Tesla being impacted by the way in

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Speaker 2: which BYD is doing business in China?

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Speaker 1: Tesla even though you know, they're quite a special brand

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Speaker 1: and a lot of the electric vehicle buyers in China,

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Speaker 1: they've not been able to escape the impact from the

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Speaker 1: price war. Our Bloomberg colleagues have reported that Tesla actually

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Speaker 1: started to trim its production output in its Shanghai plants,

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Speaker 1: so it shows that they are also experiencing a weakening

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Speaker 1: demand from this really fierce evy market in China.

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Speaker 3: What a lot of investors might be curious about is

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Speaker 3: whether or not they get too far out over theirs

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Speaker 3: with some of.

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Speaker 5: These global expansion plans.

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Speaker 3: I'm not sure whether or not they added much, and

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Speaker 3: I know that there's a call this morning from which

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Speaker 3: we'll probably get a lot more questions answered. But anything

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Speaker 3: in these earnings that stand out with the thinking about

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Speaker 3: setting up a plant in Mexico and expanding in Europe

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Speaker 3: and ultimately trying to get into the US.

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Speaker 1: Market, Yeah, BYD is definitely going to continue as international

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Speaker 1: expansion because you know, although China is the world's largest

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Speaker 1: ev market, given this fares priceword that's happening, the margins

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Speaker 1: are from cast sold in China actually isn't as high

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Speaker 1: as BID would like to hope, So by exporting to

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Speaker 1: overseas markets like Europe, they can actually command higher pricing

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Speaker 1: and that in turn can help lift their bottom line.

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Speaker 1: And it was noted by analysts that their margins wasn't

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Speaker 1: actually as bad as expected, maybe from some of this

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Speaker 1: effect of exporting overseas and having higher pricing for those cars.

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Speaker 2: I was looking at the FT. They had an article

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Speaker 2: in the most recent edition, the digital edition, talking about

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Speaker 2: how about a quarter twenty five percent of the EV

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Speaker 2: sold in the European Union this year will be manufactured

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Speaker 2: in China. This is creating a bit of tension with

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Speaker 2: the companies in particularly in Germany that manufacturer vehicles. Is

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Speaker 2: there a way out? Is there a way to kind

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Speaker 2: of dial down the tension and perhaps a lot more

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Speaker 2: of it.

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Speaker 5: That's a really good question.

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Speaker 1: It's not very clear how this tension can be kind

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Speaker 1: of alleviated because China right now is experiencing this problem

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Speaker 1: of weakening demand and over capacity, so a lot of

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Speaker 1: these automakers kind of have nowhere to go but to

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Speaker 1: export their vehicles. But on the other hand, you see

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Speaker 1: it in Europe of these new probably cheaper vehicles coming

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Speaker 1: into their market as going to hit the local automakers so,

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Speaker 1: like you said, the firms in Germany, he probably aren't

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Speaker 1: very happy with this, and we know the French have

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Speaker 1: also lobbied the EU two kind of launched this anti

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Speaker 1: subsidy investigation. So it remains to be seen how China

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Speaker 1: is going to have to manage the geopolitics. And I

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Speaker 1: think with this coming year, when the results of the

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Speaker 1: anti subsidy investigation comes out, we're going to have a

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Speaker 1: clearer picture.

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Speaker 5: I think we have to say.

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Speaker 3: With BID now offering its most inexpensive car at less

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Speaker 3: than ten thousand US dollars, and with this price war

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Speaker 3: that we've seen, they're going for volume here and this

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Speaker 3: must really spook some of the other automakers in China,

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Speaker 3: particularly as Doug mentioned at the beginning.

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Speaker 1: Tesla precisely after Bid kind of kicked off this latest

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Speaker 1: round of price cuts in the beginning of this year,

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Speaker 1: we've seen other carmakers followed and close brands like Jelly

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Speaker 1: Leap Motor, a lot of EV makers kind of have

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Speaker 1: no choice but to follow. And the interesting thing is

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Speaker 1: these price cuts have also impacted gasoline vehicles, which can

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Speaker 1: usually are cheaper than EV's, But now byd has his

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Speaker 1: goal of making EV's cheaper than gasoline carts. So that's

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Speaker 1: forced companies like Toyota and Volkswagen to kind of have

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Speaker 1: to join in and try to counter this offensive.

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Speaker 2: Yeah, we were talking earlier in the program about this

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Speaker 2: move on the part of China to file a complaint

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Speaker 2: essentially with the World Trade Organization over some of the

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Speaker 2: EV subsidies that exist here in the States as the

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Speaker 2: result of the Inflation Reduction Act, one of the President's

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Speaker 2: signature pieces of legislation, and his Trade rep cat and

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Speaker 2: sizing basically holding up the mirror to Beijing and saying

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Speaker 2: that China continues to use unfair policies and practices to

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Speaker 2: undermine fair competition and dominate global markets. It doesn't sound

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Speaker 2: like free trade without protectionism is going to continue to

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Speaker 2: exist when you look at the electric vehicle industry.

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Speaker 1: No, it's definitely NOTTS. I think this follows this greater

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Speaker 1: trend of the globalization, basically countries kind of erecting these

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Speaker 1: barriers up again to protect domestic industries that may have

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Speaker 1: been dismantled decades ago, especially since China joined the WTO.

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Speaker 1: And I think the US has a fair points in

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Speaker 1: that China did install quite a lot of rules to

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Speaker 1: protect its auto industry, especially in its kind of growing

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Speaker 1: up phase. When foreign automakers entered the Chinese market, they

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Speaker 1: weren't able to do so without forming a joint venture

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Speaker 1: where they cannot own more than fifty percent of that business,

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Speaker 1: so essentially having to kind of share profits and technology

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Speaker 1: with a local Chinese partner. And in that process, the

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Speaker 1: Chinese domestic car makers, you know, got to benefit from

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Speaker 1: these know how of the foreign car makers. So now

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Speaker 1: the table kind of has turned, and so yeah, I

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Speaker 1: think it would be really interesting to watch how these

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Speaker 1: kind of trade tensions will continue to unfold.

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Speaker 3: Yeah, I was struck by the irony and the answers

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Speaker 3: to one of the earlier questions where you said, BYD,

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Speaker 3: you know, it's not making as much money in China

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Speaker 3: as you would like because it has to sell the

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Speaker 3: cars too cheap, and it can sell them at higher

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Speaker 3: prices in Europe. But then the European car makers are

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Speaker 3: worried that those prices are too low for Europe.

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Speaker 5: So it's quite ironic.

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Speaker 3: And then it raises the question, you know, why is

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Speaker 3: BYD expanding in Japan? I mean, this would seem to

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Speaker 3: be almost like a bottomless pit, but they are very ambitious,

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Speaker 3: and they are expanding in Japan. What's the ultimate strategy.

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Speaker 1: There BYD does seem to have a very global kind

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Speaker 1: of expansion in mind right now, you know, kind of

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Speaker 1: no market would be off limits. I would say it

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Speaker 1: depends on, you know, how they plan to continue to

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Speaker 1: go into new markets. So Japan definitely is an interesting

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Speaker 1: case given that it has such an established auto market already.

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Speaker 1: It already has you know, some of the world's biggest

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Speaker 1: automakers like Toyota, and the Japanese consumers actually don't take

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Speaker 1: to evs, haven't taken to evs yet. Hybrids are still

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Speaker 1: selling really well over there, and that's something that BYD

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Speaker 1: doesn't have a strong offering of. BYD probably has a

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Speaker 1: lot of tough time ahead of it trying to educate

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Speaker 1: the local consumers about EV's and get the to kind

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Speaker 1: of take on as products. But I think if BYD

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Speaker 1: can crack the Japanese market, then that's all the more

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Speaker 1: beneficial for BYD as it continues to expand.

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Speaker 2: Last question, I'll give you twenty seconds to answer at Linda.

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Speaker 2: I mean, are you expecting a lot in the way

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Speaker 2: of failures Here are some of these smaller ev makers

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Speaker 2: in China. Just given the macro that we've just laid out,

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Speaker 2: you've done a beautiful job of helping us understand what's

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Speaker 2: it work here? Are we going to expect bankruptcies and

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Speaker 2: failures now some of these smaller ev makers?

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Speaker 5: Sure answer is yes.

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Speaker 1: We're already seeing quite a few players are pushed to

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Speaker 1: the brink by such a fierce compeition, and I think

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Speaker 1: we're going to continue to see more of that.

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Speaker 3: You know, Doug, we often hear a great question from

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Speaker 3: our guests, but we don't often say great answer, but

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Speaker 3: we should say to to Linda, great answers there. You

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Speaker 3: really filled out the scene quite nicely for us. Linda,

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Speaker 3: Thank you for joining us. Linda lu Bloomberg China Cars.

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Speaker 5: Reporter with US Live. This is Bloomber.

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Speaker 3: Well. Let's pick up on a story that Doug mentioned

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Speaker 3: a few moments ago. Ali Baba has called off its

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Speaker 3: IPO for its logistics arm Siginiow and joining us now

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Speaker 3: in our studios is Sarah Jung, who is Bloomberg China

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Speaker 3: Technology Reporter. Sarah, this speaks to many issues, but two

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Speaker 3: really come to the four one. It's not a very

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Speaker 3: good environment, I guess for selling assets. So we heard

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Speaker 3: that from Joseph Sai that the market is pretty depressed,

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Speaker 3: and secondly that this kind of brings into question the

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Speaker 3: whole restructuring of Ali Baba.

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Speaker 5: What else stands out.

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Speaker 6: I think that's exactly right. So Joseph Thai last night

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Speaker 6: in a call with analysts, was trying to explain their move.

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Speaker 6: He was saying that one, it's the pretty depressed market.

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Speaker 6: They can't get the kind of valuation that they believed

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Speaker 6: he now should be strategically valued at. And the other

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Speaker 6: is that they're trying to say that they because of

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Speaker 6: their phone on their core businesses, which is e commerce

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Speaker 6: and cloud computing, they wanted better expand Tinel internationally to

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Speaker 6: be able to service their core e commerce business so

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Speaker 6: that they can compete better in what's a very intensive

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Speaker 6: and highly competitive market.

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Speaker 2: So this is the second time that Baba has next

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Speaker 2: to high profile debut. Take me back to win the

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Speaker 2: plan to split into six separate units was unveiled. I'm

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Speaker 2: trying to remember that this really was to try to

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Speaker 2: appease the government in some ways so that Boba's assets

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Speaker 2: were not so concentrated and they wanted to try to

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Speaker 2: diversify that am I remembering that correctly?

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Speaker 6: Well, that the company itself would probably dispute that, but yes,

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Speaker 6: they were. They did announce this restructuring spinoff plan earlier

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Speaker 6: last year, and part of that, people analysts were saying,

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Speaker 6: was to allow the business, which had gotten a little

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Speaker 6: bit too big for its bridges in terms of from

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Speaker 6: the government's personerspective, to lay a little bit more low

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Speaker 6: profile and to be able to spin off independently. Of course,

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Speaker 6: since then, in the past few months, we've seen a

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Speaker 6: lot of hiccups in the restructuring process. Last November Ali

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Speaker 6: Baba also mixing the a debut for their cloud arm

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Speaker 6: we saw a lot of leadership reshuffling and shake ups,

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Speaker 6: their longtime.

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Speaker 5: CEO Daniel Jeong being.

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Speaker 6: Sort of stepping down quite abruptly and having new leadership

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Speaker 6: come on and including Joe's High and also the new

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Speaker 6: CEO Eddie Wu and then now Eddie Woo taking the

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Speaker 6: helme directly of cloud and commerce and really restructuring and

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Speaker 6: mixing things up in those units.

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Speaker 3: It looks on the surface a little bit like disarray

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Speaker 3: and investors obviously you know they're they're selling down the

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Speaker 3: stock a little bit today, but there could be some

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Speaker 3: positives to it, and we still don't know. I mean,

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Speaker 3: they so they pull fresh ship ball when they pull

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Speaker 3: now sign you out. But do we know much about

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Speaker 3: what's ahead for Ali Baba Cloud, because that's one that

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Speaker 3: a lot of investors would have been very interested in.

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Speaker 2: Exactly.

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Speaker 6: I think Ali Baba Cloud was the big, high profile

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Speaker 6: IPO spin off that everyone was excited for. It seems

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Speaker 6: like now, given you know, market conditions and the rationale

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Speaker 6: into their decision to pull back on tight now and

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Speaker 6: also Fresh Hippo, it seems like that's not going to

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Speaker 6: happen now or in the foreseeable future. And and so

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Speaker 6: definitely that's something that investors would would it would give

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Speaker 6: it would give pause to them. And Joe actually last

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Speaker 6: night was quite explicit and saying that their original conception

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Speaker 6: of this avenue where they could unlock shareholder value through

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Speaker 6: the capital markets, that's no longer viable, at least in

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Speaker 6: the short term, and now they're going to focus on

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Speaker 6: just trying to drive value through things like buybacks and

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Speaker 6: selling off their noncore business assets and just focusing in

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Speaker 6: on commerce and cloud.

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Speaker 2: Well, that was part of my next question. When I

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Speaker 2: think of this company, I think of e commerce obviously

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Speaker 2: the major player in China. How is that business doing well?

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Speaker 6: They're under a lot of pressure domestically from other rivals,

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Speaker 6: including upstarts like ByteDance with their Doing, which is the

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Speaker 6: Chinese equivalent of TikTok, and also other short video platforms

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Speaker 6: like Kwaisho really getting into live streaming e commerce, which

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Speaker 6: is eating into Alibaba's market share, and also of course

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Speaker 6: from their traditional rivals like JD dot Com and also Pingodo,

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Speaker 6: which is more of like a budget type of e

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Speaker 6: commerce platform. And then internationally we're also seeing their under

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Speaker 6: pressure from Pingodo's Timu Shean also TikTok shop abroad. So

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Speaker 6: it's really you know, putting a lot of pressure on

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Speaker 6: the commerce side to perform better. And that's part of

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Speaker 6: why they're saying they want to double down their investment

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Speaker 6: on site now so that they can better service the

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Speaker 6: logistics part of this commerce business.

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Speaker 3: We know that the chairman and Joseph Sai is a

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Speaker 3: very good operator, very sensible and strong operator.

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Speaker 5: And Jackmaw obviously is a legend.

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Speaker 3: They always, you know, in all the conferences that I

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Speaker 3: went too over the thirty odd years. Here, I mean

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Speaker 3: the Ali Baba people were always among the smartest in

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Speaker 3: the room. So it's hard to imagine what's happened to

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Speaker 3: this company, and it's also hard to bet against in

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Speaker 3: a big way. But it seems like they're in trouble.

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Speaker 6: I think that's the confusing part or difficult part for

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Speaker 6: a lot of investors to understand. When they initially announced

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Speaker 6: the spinoff plan last year and the restructuring, there was

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Speaker 6: a lot of promise from the investors side. They did

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Speaker 6: feel like, Okay, maybe this is a way where this

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Speaker 6: sort of struggling e commerce empire, coming off of the

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Speaker 6: regulatory crackdown from the government, that would be a way

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Speaker 6: that they can reinvigorate growth and unlock that kind of

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Speaker 6: shareholder value. Unfortunately, we haven't really seen that play out

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Speaker 6: in the same way. Part of that is from external factors,

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Speaker 6: like just the increasing competition in the market and also

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Speaker 6: just the depressed IPO market, which makes capital markets not

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Speaker 6: a very good path for the company. But at the

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Speaker 6: same time, it does start to raise questions about like

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Speaker 6: what is the management thinking exactly, Were there certain missteps

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Speaker 6: or things that could have done differently in the rollout

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Speaker 6: of this restructuring.

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Speaker 3: Or is the political pressure just that great, and we

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Speaker 3: don't know, you know, it's almost impossible to say everything

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Speaker 3: on that level is kind of black box stuff in China,

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Speaker 3: but we have seen Jack Mawk come a little bit

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Speaker 3: more into the spotlight. So it's a story that continues

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Speaker 3: to unfold. Sarah, thanks for helping us understand it. Sarah Cheng,

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Speaker 3: Bloomberg China Technology Reporter. We thought it was a good

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Speaker 3: time to take a closer look at the banks as

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Speaker 3: earnings are nigh in China. Bloomberg Intelligence says that icbc's

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Speaker 3: margin and loan quality in twenty twenty three in the

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Speaker 3: results could set the tone for the industry's fundamental prospects.

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Speaker 3: And joining us now in our studios is Shoo Jin Chen,

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Speaker 3: who's head of China Financial and Property research over at Jeffries.

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Speaker 3: So is that right, Hu Jin, that we could see

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Speaker 3: some margin pressures here for the leading banks in these

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Speaker 3: latest numbers.

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Speaker 7: Definitely, So for almost all SOOE banks we would probably

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Speaker 7: see around like a ten base point decline in year

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Speaker 7: for last year's margin, and also for like going forward,

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Speaker 7: we do see netting just margin pressure mainly due to

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Speaker 7: the AIRPR cut as well as the very weak demand.

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Speaker 2: So it reflects the interest rate environment. I understand that

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Speaker 2: maybe you could make the argument that if loan demand

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Speaker 2: or stronger, it may be okay to sacrifice a little

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Speaker 2: bit of margin. But when I look at the data,

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Speaker 2: at least the numbers for China in the month of February,

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Speaker 2: a loan growth was probably the slowest on record, as

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Speaker 2: I recall, So what can the government do? What can

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Speaker 2: anyone do to kind of revive the demand part of

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Speaker 2: the story.

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Speaker 7: So first, if we only look at February long growth,

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Speaker 7: it was largely affected by the seasonal issue. You know

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Speaker 7: that last year the Chinese New Year was in January

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Speaker 7: and there's not no no long issues during the new

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Speaker 7: during the festival. What this year is in February, So

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Speaker 7: that results like very slow long growth for the overall

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Speaker 7: long growth this year we expected to slow slow down

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Speaker 7: a little bit, but the new loan could be like

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Speaker 7: similar amount of last year. On the second is that well,

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Speaker 7: although the new one could be like similar to last

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Speaker 7: year's scale, but we think the individual the household demand

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Speaker 7: was quite a weak.

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Speaker 3: Well.

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Speaker 7: Banks may like because they're trying to reach the growth

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Speaker 7: long growth target, they may lend to those like central

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Speaker 7: s e with very low long yield, so that also

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Speaker 7: I mean sacrifice. They are sacrificed, they are not just margin.

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Speaker 7: So regarding to like boosting credit demand, I would say

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Speaker 7: that the key focus today is still on the policy side.

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Speaker 7: But because in our base case scenario we don't exp

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Speaker 7: China to conduct like Basuga stimulus, Therefore it could be

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Speaker 7: a long time for this especially household to recover demands

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Speaker 7: for infrastructure and the property secual We probably will see

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Speaker 7: like more investment following the special government issuance. And also

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Speaker 7: as you know that China is conducting the white list

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Speaker 7: for projects for projects and that helps.

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Speaker 3: That's the big thing is with this white list, you

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Speaker 3: would expect, I suppose the banks to be directing a

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Speaker 3: lot more funding in that direction. What does that mean

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Speaker 3: for the others who aren't on the white list?

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Speaker 7: Very good question first is that actually if we look

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Speaker 7: at the rule for the white list, one of the

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Speaker 7: key role is that the project need to have sufficient collateral.

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Speaker 7: But for China banks, if the project has sufficient collateral,

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Speaker 7: then banks probably are very happy to lend to it,

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Speaker 7: whether it's not it's our or not on a white list.

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Speaker 7: So I think for like for for the projects like

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Speaker 7: outside the white list, banks use I mean bank where

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Speaker 7: used there like screening those projects and see whether they

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Speaker 7: have sufficient projects, sufficient cultural But for those on a

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Speaker 7: whire list that I doubt that they may have some

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Speaker 7: issue regarding to either the like collateral or other issue. Otherwise,

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Speaker 7: I mean, if they have sufficient colateral, I don't think

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Speaker 7: that local government need to like push them so hard

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Speaker 7: to banks.

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Speaker 2: Right, we know the real estate story. We know the

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Speaker 2: property prices have been slumping and how that is kind

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Speaker 2: of rippled through the entire economy. The question is how

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Speaker 2: long will it take to recover in your view, and

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Speaker 2: in the interim, is it possible for the government to

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Speaker 2: make up that lack of a powerful driver a growth driver.

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Speaker 2: Could it be made up for an industrial policy? Do

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Speaker 2: you think? Very good question.

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Speaker 7: So if we look at the property sector, I'm so

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Speaker 7: of On one hand is that the transaction volume, including

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Speaker 7: both the primary market and the secondary market, may recover earlier.

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Speaker 7: Currently we see actually the secondary market account for around

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Speaker 7: almost close to like fifty percent of total transaction in China,

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Speaker 7: which is significantly increased from like twenty percent several years ago.

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Speaker 7: And the second is seid. But the key issue is

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Speaker 7: that mainly the I mean the primary market sales is

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Speaker 7: the mainly it's the main contribution to create a main

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Speaker 7: contribution to the GDP growth. So regarding to the primary

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Speaker 7: market sales, we still see a very long way to go,

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Speaker 7: especially the pricing the primary market. We still see some

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Speaker 7: like downward pressure both in this year and going forward.

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Speaker 3: It's a little surprising to see the stock prices of

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Speaker 3: some of the banks have actually not been too bad. ICBC,

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Speaker 3: for instance, over the last six seven months has trended higher.

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Speaker 3: I'm wondering whether our investors were hoping for an increase

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Speaker 3: in dividend, but given the climate, is it not very

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Speaker 3: reasonable to expect an increase in dividends?

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Speaker 7: Very good question. So actually we do expect a dividend

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Speaker 7: increase for some joint stock banks whose dividend payout was

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Speaker 7: less than thirty percent before and also for like CMB,

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Speaker 7: they also increased their dividend payout racial from thirty to

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Speaker 7: thirty five percent. But for large SOE banks as who

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Speaker 7: just mentioned, we don't expect that they would increase their

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Speaker 7: dividend payout because they need to balance between the long growth,

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Speaker 7: the asset growth versus the quartier one capital and the

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Speaker 7: quincider racial. You know that the long growth last year

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Speaker 7: for SOE banks was like more than thirteen percent, so

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Speaker 7: it definitely they need to pay attention to that.

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Speaker 3: All right, Shan Sho jin Shi, thank you very much

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Speaker 3: for coming in into our studios.

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Speaker 5: From Jeffries with a S Live. This is Bloomberg.

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