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Speaker 1: Good morning. It's Wednesday, the thirtieth of August here in London.

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Speaker 1: This is the Bloomberg Daybreacate podcast. I'm Caroline Hepki.

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Speaker 2: And I'm Stephen Carroll. Coming up today, Bloomberg Economics says

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Speaker 2: China's teetering property sector could be heading for a solvency

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Speaker 2: crunch by the end of the year.

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Speaker 1: UK home sales remain on track to hit their lowest

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Speaker 1: level in over a decade.

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Speaker 2: And a date for the Diary Apple reveals the timing

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Speaker 2: of its biggest product launch this year.

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Speaker 1: Let's start with a round up of our top stories.

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Speaker 2: China's property developers face a cash crunch that's so big

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Speaker 2: it equates to fifteen percent of the country's entire GDP.

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Speaker 2: Bloomberg Economics is now warning the sector is both too

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Speaker 2: big to fail and too big to save, with the

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Speaker 2: possibility of a solvency crisis by the end of the year.

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Speaker 2: The bleak assessment comes as China's largest banks prepared to

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Speaker 2: cut interest rates on existing mortgages and deposits in a

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Speaker 2: bid to shore up the sagging economy. Dweifor Evans, head

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Speaker 2: of Asia Pacific Macro's strategy at Street Global Markets, says

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Speaker 2: market participants are skeptical.

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Speaker 3: It's very clear that investors an investor sentiment on China

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Speaker 3: remains quite negative still. So you've got two theories here.

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Speaker 3: One you've got the underwhelming data that we've had here

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Speaker 3: to date, and secondly, this perception that the policy that

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Speaker 3: we've seen to date has simply been not sufficient to

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Speaker 3: actually drag the economy out of its slow down.

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Speaker 2: As comments Farmdwive whe Evans on shaky investor confidence are

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Speaker 2: underlined by the latest news from Country Garden, the embattled

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Speaker 2: property developer says it's now aiming to issue more than

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Speaker 2: thirty four million dollars worth of new shares as it

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Speaker 2: tries to meet payment deadlines.

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Speaker 1: The US Commerce Secretary says that American businesses tell her

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Speaker 1: that China is becoming increasingly uninvestable. Speaking during her visit

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Speaker 1: to the country, Gina Raimondo pointed to challenges including fines

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Speaker 1: and ambiguity over China's new anti espionage law. The former

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Speaker 1: US Ambassador to China, Max Booker's, doesn't agree.

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Speaker 4: I they go, businesses know that if they're smart, if

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Speaker 4: they maintain their business relationships in China, they could probably

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Speaker 4: work out a deal now It's true that it's the

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Speaker 4: climate in China's makes it more difficult for US, but

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Speaker 4: I would not say uninvestable. I would just say it's

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Speaker 4: big risks are greater.

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Speaker 1: Max Bookus's comments come as the UK's Foreign Secretary James

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Speaker 1: Cleverly heads to Beijing. Cleverly is the most senior British

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Speaker 1: politician to visit in six years, and he now says

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Speaker 1: he wants to reset ties between the two countries.

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Speaker 2: Sales of UK homes are expected to fall to their

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Speaker 2: lowest level in a decade as higher mortgage rates way

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Speaker 2: On buyers property website Zooplus, he's a twenty percent drop

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Speaker 2: in deals this year compared to twenty twenty two. Executive

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Speaker 2: director Richard Donald says the market downturn is also hitting renters.

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Speaker 5: High mortgage rates are slowing transactions down in the sales market,

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Speaker 5: but meaning people continue to rent, so it's adding to

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Speaker 5: demand for rented housing. The other thing about high more,

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Speaker 5: they're sort of incentivizing more landlords to look to sell.

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Speaker 6: At the moment.

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Speaker 2: Donald's forecast is based on the number of homes sold

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Speaker 2: so far this year. He adds that arise in home

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Speaker 2: sales by rental landlords is helping first time buyers.

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Speaker 1: Now. In some market news, a rush of hedge funds

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Speaker 1: shorting treasury futures suggests more volatility could be ahead for

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Speaker 1: the market. The funds are now short on over six

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Speaker 1: million ten year note futures, effectively a giant bet that

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Speaker 1: yields will rise. The surge in derivative positions may exacerbate

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Speaker 1: volatility in the market, as happened in previous cases when

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Speaker 1: they were rapidly unwound.

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Speaker 2: Gray Scale has won a key court battle and it's

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Speaker 2: push to launch a bitcoin exchange traded fund. The victory

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Speaker 2: over the US Securities and Exchange Commission brings the crypto

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Speaker 2: industry closer to tapping billions of dollars from everyday investors.

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Speaker 2: Paul Gruwal, chief legal officer at Coinbase, says it's an

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Speaker 2: important moment.

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Speaker 7: Courts once again are stepping in to provide regulatory clarity

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Speaker 7: where the SEC has refused to do it. This was

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Speaker 7: a unanimous opinion. It just shows again that the SEC,

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Speaker 7: when it acts contrary to law without regard for developing

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Speaker 7: common rules and standards, is going to find itself held

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Speaker 7: accountable in courts of law.

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Speaker 2: Paul Gray, while another crypto advocates believe an ETF based

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Speaker 2: on spot bitcoin prices would result in a gush of

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Speaker 2: retail cash. Boomberg Intelligence estimates the total market could be

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Speaker 2: worth in the region of one hundred and fifty billion dollars.

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Speaker 1: And finally, Apple has set a date for its biggest

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Speaker 1: product upgrade event of the year. That story from Plumberg's

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Speaker 1: Charlie Pellett.

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Speaker 6: The date is September twelfth, and Apple will unveil the

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Speaker 6: iPhone fifteen line and next generation smart watches. The company

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Speaker 6: announced the plans on its website and via email under

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Speaker 6: the tagline Wonderlust. The presentation will be streamed online at

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Speaker 6: ten am Pacific, with an accompanying event at Apple's Steve

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Speaker 6: Jobs Theater in Koopertino. Apple is under more pressure than

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Speaker 6: usual with this iPhone launch. Its sales have slipped for

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Speaker 6: three straight quarters as the company contends with shaky demand

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Speaker 6: for smartphones and other devices in New York. Charlie Palette,

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Speaker 6: Bloomberg Date Break Europe.

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Speaker 1: Now, those are some of our top stories in the markets.

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Speaker 1: I wonder whether you read this A lot of people did.

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Speaker 1: Have you got an expensive time piece? Do you want

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Speaker 1: something that rivals are yacht there's an in depth story

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Speaker 1: all about Richard mill and his watches. They only make

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Speaker 1: a few thousand of them. Watch stories on the Blueberg

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Speaker 1: terminal always get so much interest, and this was no different.

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Speaker 1: Whole lifestyle.

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Speaker 2: Yeah, so I wasn't actually familiar with these, but essentially

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Speaker 2: they're sort of inside out watches. You can see the

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Speaker 2: workings of them when you look at them, and they

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Speaker 2: are really exquisite actually, the detail of what you can

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Speaker 2: see in terms of how they move. Of course, you

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Speaker 2: know it's been at the used and worn by many celebrities,

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Speaker 2: sickly in the sporting world, but also the likes of

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Speaker 2: Frail Williams's war them as well. The rarity value was

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Speaker 2: what's really important here is there's so few of them,

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Speaker 2: and in fact, some of the models there's one that

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Speaker 2: was only fifteen of them were made that has a

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Speaker 2: flowering flower in it, a magnolia flower in fact, on

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Speaker 2: the torbient Fleur model, and they are incredible. However, as

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Speaker 2: a counterpoint, I would say it can be quite difficult

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Speaker 2: to tell the time looking at some of these time I'm.

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Speaker 1: Not sure that's why you buy them. Apparently they are

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Speaker 1: dubbed the Billionaire's handshake, and of course, therefore Kendall voy

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Speaker 1: if you're a succession fan War one in one of

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Speaker 1: the seasons, we're told no. But it's a very nice

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Speaker 1: piece about sort of extravagant wealth and the kind of

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Speaker 1: lifestyle that goes with it. And yeah, the stories around

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Speaker 1: watches always yeah of interest.

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Speaker 2: Indeed, do we watch closely? Let me see those things.

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Speaker 2: Let's turn to the latest news out of China next.

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Speaker 2: New research from Bloomberg Economics shows that China's property developers

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Speaker 2: face a wall of obligations that could morph into a

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Speaker 2: solvency crisis by the end of the year. This is

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Speaker 2: the Chinese developer country Garden, which is at risk of defaulting,

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Speaker 2: is due to report earnings today. Joining us now for

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Speaker 2: more is Bloomberg Shang Hiberia chief Charlie Zoo. Charlie, great

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Speaker 2: to have you with us. We're looking at this Bloomberg

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Speaker 2: intelligence report. How big is the problem facing China's property developers.

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Speaker 8: Yeah, the latest data we've got is Chinese developers have

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Speaker 8: deat worth like nearly fourteen trillion one or twelve percent

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Speaker 8: or correctly of the nation's GDP at risk of default.

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Speaker 8: That's the latest data. And Chinese junk dollar bonds, which

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Speaker 8: is are issued mostly by developers, have lost and unpercent

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Speaker 8: unprecented eighty seven billion dollars in trading of the past

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Speaker 8: two years, so in a very short time frame, and

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Speaker 8: Chinese local corporate bond defaults are running at the highest

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Speaker 8: level since the beginning of the year. The stress there's

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Speaker 8: a you know big, you know, serious distress in the

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Speaker 8: local market as well. So given the sheer size of

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Speaker 8: the property deaths and its importance to the economy, so

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Speaker 8: if the bubble bursts, it will have a huge repercussion

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Speaker 8: across the economy, as you can imagine.

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Speaker 1: Yeah, absolutely, the size and scale is enormous. But then

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Speaker 1: why has the issue become so bad when it's been

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Speaker 1: known about for years now?

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Speaker 8: So, you know, over the past two decades, you know,

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Speaker 8: property has been regarded as a killar economy for local

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Speaker 8: governments across the country because of rapid urbanization people moving

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Speaker 8: in from countryside. Local governments is also happy to see

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Speaker 8: such a boom as they you know, can make tons

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Speaker 8: of money from land sale and also collected huge amounts

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Speaker 8: of taxes you know, from all kinds of property related transactions.

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Speaker 8: So the industry has been a money spinner for the

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Speaker 8: state landlords for decades. On the other hand, for ordinary households,

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Speaker 8: property has proven to be the best performing as a cost,

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Speaker 8: delivering an annual compound growth rate of more than twenty

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Speaker 8: percent in some major cities like Shanghai. So people got

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Speaker 8: crazy about probably and that push developers to borrow and

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Speaker 8: borrow to build more and more houses, and then the

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Speaker 8: bubble started to burst because of massive over supply. Policymakers actually,

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Speaker 8: you know have realized the issue back a few years back,

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Speaker 8: remember seeing being slogan of housings for living off for speculation,

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Speaker 8: speculation back in twenty fifteen, But obviously it's the in

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Speaker 8: the last few years. People continued to ignore the warning

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Speaker 8: and continued pile into the market, and now you're facing

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Speaker 8: serious blood in the in the market and developers built

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Speaker 8: way too many houses of the years. According to a

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Speaker 8: Goldman SAX report last month or earlier this month, it

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Speaker 8: would take at least five years just to clear the inventory.

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Speaker 8: And many of those you know inventory are half completed projects.

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Speaker 2: Given the scale of the issue and the number is

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Speaker 2: highlighted in this report, these developers too big to save.

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Speaker 8: Well, so from the government point of view and the

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Speaker 8: first one to do is they are trying to diffuse

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Speaker 8: the risk, preventing it from setting off a domino effect

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Speaker 8: across the industry and pull down the economy. Right, So

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Speaker 8: what you are seeing is they are working to ensure

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Speaker 8: developers have enough funding to complete housing projects and deliver

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Speaker 8: them to home buyers, otherwise they will be social unrests.

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Speaker 8: You have seen the mortgage protest in China last year, right,

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Speaker 8: and they're also lowering the policy makers are also lowering

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Speaker 8: mortgage rates to drive demand from first time home buyers

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Speaker 8: and people who have the need to upgrade. So they

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Speaker 8: don't want to stimulate speculative buying for sure, they want

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Speaker 8: the real demand. The second priority is creditors bondholders. From

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Speaker 8: what we have seen, the strategy is to let developers

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Speaker 8: renegotiate the payment terms, extending the payment deadlines the grace

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Speaker 8: period so they don't so they don't have to declare

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Speaker 8: default or push it into bankruptcy. So actually bondholders are

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Speaker 8: fully aware. Developers cash flow these days are fully prioritized

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Speaker 8: for project delivery instead of bond repayment. Nothing surprising, So

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Speaker 8: only your question whether the developers are too big to

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Speaker 8: fail to save yes or not? What's clear is probably

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Speaker 8: does not. The policymakers, you know, don't want the biggest

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Speaker 8: ones to collapse because otherwise it will cost too much

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Speaker 8: pain for the industry. But at the same time, it

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Speaker 8: seems regulars when I want to bail them out, that

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Speaker 8: will trigger something called mora hazard. Right, so the deliveration

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Speaker 8: in the sector. Expect you to continue.

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Speaker 1: Yeah, it's an extraordinary story. Charlie, Thank you so much

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Speaker 1: for joining us this morning. Bloomberg Shanghai Bureau Chief, Charlie,

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Speaker 1: is you on the latest Bloomberg Economics estimates that China's

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Speaker 1: property developers face eighteen point nine trillion one in terms

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Speaker 1: of that liquidity shortfall?

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Speaker 2: Up next, an investigation into Goldman's use of Chinese money

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Speaker 2: to buy UK companies and Burger Kings Whippo.

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Speaker 9: Now the paper review on blue Bird Daybreak Europe. The

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Speaker 9: news you need to know from today's papers.

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Speaker 1: Well makes James, we'll call it, joins us now in

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Speaker 1: studio for a look through the key business stories in

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Speaker 1: the newspapers. Let's start with the Financial Times, an investigation

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Speaker 1: into Goldman Sachs and its ties to China.

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Speaker 9: Yes, Caroline, so this is a fascinating story because on

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Speaker 9: one hand, you'd argue, like, nothing is a miss here,

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Speaker 9: So what is going on is Back in twenty seventeen

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Speaker 9: Donald Trump visits to China, Goldman announced it would set

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Speaker 9: up a fund with a Chinese state to invest in

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Speaker 9: companies in America and the West as a way of

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Speaker 9: building ties between the two of them. And then they

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Speaker 9: have done so. They have used roughly two point five

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Speaker 9: billion dollars in private equity in this partnership fund to

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Speaker 9: invest in multiple companies, seven of which over the past

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Speaker 9: three years have been in the UK. End of story. However,

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Speaker 9: when we are looking at big issues of Chinese influence,

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Speaker 9: issues of how far these companies are subject to a

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Speaker 9: kind of inforts from their shareholders, how far this stuff

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Speaker 9: is transparent and open in terms of private equity, the

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Speaker 9: ft have done this big investigation, which chimes with James

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Speaker 9: cleverly being in Chance day for this big meeting to

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Speaker 9: say that you have quite serious companies. It includes Netitude,

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Speaker 9: which says on its website it is an approved service

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Speaker 9: provider for the UK government and helps quote strengthen government

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Speaker 9: defense organizations across the world by doing things such as

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Speaker 9: ethical hacking, where it attempts to find vulnerabilities and state

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Speaker 9: websites and then passes them onto the state. That is

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Speaker 9: a company that is part owned by a fund that

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Speaker 9: is part owned by the Chinese state, and that is

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Speaker 9: what the FT have aimed to show. It is worth

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Speaker 9: saying that the seven companies, when contact to comment, most

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Speaker 9: of them did not respond to requests by the LRQA,

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Speaker 9: which is part owned by Lloyd's. Goldman said in the statement.

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Speaker 9: The Cooperation Fund is a US fund run by a

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Speaker 9: US manager and has managed being compliance with all laws

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Speaker 9: and regulations, and a British government officials said it did

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Speaker 9: not comment on specific acquisitions given the quasi judicial nature

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Speaker 9: of its investments. Screening per hours. So on the face

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Speaker 9: of it, this is just private equity working to help

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Speaker 9: countries investors. It should, but it also raises some serious questions.

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Speaker 2: Okay, really interesting story in the FT today. Let's go

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Speaker 2: to the Wall Street Journal next, writing about German stagnation.

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Speaker 9: Yes, this is an interesting story. The Water Journal have

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Speaker 9: taken a very very scathing edge to looking at Germany's

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Speaker 9: economy and it's quite interesting to sort of separate what

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Speaker 9: is real and what is not here in terms of

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Speaker 9: they point out that Germany would be the world's only

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Speaker 9: major economy to contract in twenty twenty three, with even

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Speaker 9: sanctioned Russia experiencing growth according to the IMF. Now this

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Speaker 9: is fascint because it does point out, as they as

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Speaker 9: this water Journal askal, what goes to that Germany is

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Speaker 9: uniquely export reliant and with the recent China slow down

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Speaker 9: and also with the Ukraine War, Germany finds itself in

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Speaker 9: a very difficult position. But it is worth adding in,

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Speaker 9: I mean, look, look at a lot of Bloombergs are

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Speaker 9: putting on this just because the UK is set to

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Speaker 9: grow by IMF forecast but zero point three percent this year.

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Speaker 9: If you then doin that out to say five years,

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Speaker 9: you could argue that economies like Germany will be in

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Speaker 9: a far better position than say the UK in a

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Speaker 9: bit further, like a long time. You also point out

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Speaker 9: the piece goes in depth into sort of Germany's automotive issues,

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Speaker 9: but Tesla's gigafactory recently set up in Germany, and Germany's

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Speaker 9: had outstanding success in attracting foreign investment in the EV sphere.

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Speaker 9: But it's worth pointing out that sort of the walls

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Speaker 9: Geral is bringing together a lot of negative business voices

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Speaker 9: are questioning some of the strategic decisions Germany has made.

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Speaker 1: Yeah. Absolutely, you've seen business consumer confidence in Germany plunge

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Speaker 1: and watch out of course, because we get the CPI

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Speaker 1: data both overall for Germany stet one o'clock, then also

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Speaker 1: from North Rhine and Westphilia, which is you know, the

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Speaker 1: big industrial heartland, so we'll be looking at that. Just lastly,

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Speaker 1: squeezing the story abound. Burger King facing legal action over

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Speaker 1: the size of its whoppers, so.

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Speaker 9: A judges ruled that the jurors must decide what is

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Speaker 9: reasonable Caroline. Is the burger thirty five percent bigger on

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Speaker 9: the menu side and it is in reality as the

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Speaker 9: lawyers suggest. Now I will say very briefly, this lawyer

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Speaker 9: in particular has far more than five hundred lawsuits about

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Speaker 9: food not reflecting its label qualities between twenty twenty and

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Speaker 9: twenty twenty three. But I also say here in the

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Speaker 9: UK Burgging lost a suit back in twenty ten where

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Speaker 9: it was found that it's advertising on television didn't match

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Speaker 9: up to the size of the burger.

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Speaker 2: This is Bloomberg Daybreak Europe, your morning brief on the

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Speaker 2: stories making news from London to Wall Street and beyond.

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Speaker 2: I'm Caroline Hepker and I'm Stephen Carroll. Join us again

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