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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Dan Schwartzman. Doug Prisner is off this week.

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Speaker 1: President Trump and Chinese President Xi Jinping will meet next

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Speaker 1: week on the sidelines the Asia Pacific Economic Cooperation Summit

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Speaker 1: in South Korea. That's according to the White House. The

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Speaker 1: meeting will be the first face to face for both

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Speaker 1: leaders since Trump became president for his second term. Here's

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Speaker 1: Press Secretary Caroline Levitt making the announcement.

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Speaker 2: On Thursday morning local time, President Trump will participate in

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Speaker 2: a bilateral meeting with President She of the People's Republic

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Speaker 2: of China before departing to return home to Washington, DC.

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Speaker 1: This comes as a trade truce between Washington and Beijing

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Speaker 1: is set to expire on November tenth. Ahead of Trump

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Speaker 1: and She's meeting next week, Treasury Secretary Scott Bessen dis

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Speaker 1: expected to meet with his Chinese counterparts. These talks are

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Speaker 1: aimed to de escalate trade tensions inflamed by new Chinese

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Speaker 1: rare earth curbs and US TARFF threats. Meantime, China has

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Speaker 1: wrapped its fourth Planum session in Beijing. Chinese Communist Party

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Speaker 1: elites vout to enhanced technological self reliance and grow the

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Speaker 1: domestic market in the next five years. For more, we

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Speaker 1: heard from Paijuan Lu Economistic Fidelity International Asia, but you

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Speaker 1: spoke to Bloomberg Xannabel Rulers in April.

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Speaker 3: Honk, First off, your thoughts on what came out of

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Speaker 3: the Chinese Plenum That consumption push didn't come in as

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Speaker 3: strongly as some maybe had expected.

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Speaker 4: Yeah, thank you for the question. I think the planum

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Speaker 4: concluded with the Communic, so we don't get the full

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Speaker 4: picture yet, but scratching from the surface, it points to

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Speaker 4: largely a continuation of what their plan has been for

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Speaker 4: the last five years, which primarily is about tech self

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Speaker 4: sufficiency and it's about maintaining the manufacturing dominance within the

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Speaker 4: global landscape. So those came as the top two priorities

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Speaker 4: for the Communicate and expanding domestic market. Of course, pointing

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Speaker 4: to more consumption is also on the list of priorities,

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Speaker 4: but it's ranked third currently.

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Speaker 3: Do you think it needs to be more aggressive than

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Speaker 3: in expanding that, because we did hear from the likes

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Speaker 3: of Stephen Roach just a day ago that there is

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Speaker 3: more urgency on that for the Chinese economy than in

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Speaker 3: the past, how much do you think should be done

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Speaker 3: for consumption as a portion of GDP.

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Speaker 4: I think with regarding to this question, it's probably useful

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Speaker 4: useful to bring the context of dual circulation. If we

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Speaker 4: think about China's long term goal of expanding and establishing

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Speaker 4: a dual circulation model, the past five years was probably

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Speaker 4: more about leaning on the external circulation which they have

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Speaker 4: been formulating. So as evident today xpots has been one

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Speaker 4: of the major drivers of GDP growth, but we all

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Speaker 4: know that's perhaps not sustainable, especially giving the complex complexity

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Speaker 4: of x environment. So in the next five years I

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Speaker 4: would envision them well, it's actually alluding to as well

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Speaker 4: in a communicate that they will start expanding the domestic market.

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Speaker 4: So building up this domestic circulation is perhaps a pivot

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Speaker 4: and recalibrating within the grand scheme of the dual circulation model.

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Speaker 5: But dual circulation and lifting consumption Page one has been

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Speaker 5: a longstanding effort from the company or government rather as well,

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Speaker 5: and we've seen lots of different mentions of this. How

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Speaker 5: do they actually go about doing it in reality? And

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Speaker 5: what can you actually feasibly do to lift consumption when

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Speaker 5: you've got the big sort of elephant, which is property

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Speaker 5: prices still in aduldrums.

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Speaker 4: Yeah, that's exactly right. The economy is currently strong and

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Speaker 4: weak at the same time, so when we talk about consumption,

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Speaker 4: it's perhaps from both cyclical and structural lens. From a

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Speaker 4: cyclical perspective, we are in the view that consumption does

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Speaker 4: need a lot more support. So that's also baked in

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Speaker 4: our expectation for next year in twenty twenty six, where

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Speaker 4: the government will likely to roll out more support towards

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Speaker 4: domestic consumption. But from a structural perspective, I think the

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Speaker 4: communicate from the plan has also been emphasizing that keeping

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Speaker 4: a reasonable range of manufacturing share to GDP is also

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Speaker 4: one of the priorities. So structurally, I think expanding domestic

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Speaker 4: market will perhaps be put on the lens of expansion

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Speaker 4: of growth altogether, so growing the pie rather than redistributing

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Speaker 4: the pie in the next five years.

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Speaker 5: Then it sounds like it's going to come more from

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Speaker 5: the physical side rather than the monetary policy. Of course,

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Speaker 5: rates are already quite low, and then it's sort of

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Speaker 5: constrained on that front what would be the steps that

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Speaker 5: you would expect.

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Speaker 4: Then I still think fiscal will likely to lift the

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Speaker 4: heavy weight, especially from the central government, so in twenty

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Speaker 4: twenty six were likely to be a continuation, if not

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Speaker 4: slightly more expansionary policy stunts towards social welfare towards household consumption,

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Speaker 4: so a little bit more transfer from the central government

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Speaker 4: to the household were likely to be helpful for the rebalancing.

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Speaker 4: As you mentioned that monetary policies perhaps having slightly less rule. Nonetheless,

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Speaker 4: I still think that monetary policy will tip towards easing,

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Speaker 4: so gradual ease of benchmark race and triple R cards

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Speaker 4: are also still on the cards.

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Speaker 3: It's really about how much stimulus they can provide in

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Speaker 3: the phase of US pressure. So I wonder what is

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Speaker 3: your base case and best case for the CHUMS meeting

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Speaker 3: next week as the US China economic relationship shapes up.

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Speaker 4: That's right, I think the US channel relation, or just

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Speaker 4: at large, the external environment is part of the reaction

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Speaker 4: function as well, given how important export has been contributing

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Speaker 4: to GDP growth. So given that context, the base case

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Speaker 4: expectation for US China meeting coming up is perhaps no

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Speaker 4: further escalation from here, and to move a little bit

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Speaker 4: more to the optimistic scenario, I think a walk back

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Speaker 4: from the recent escalations were likely to be helpful and

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Speaker 4: beneficial for China's continued expots pro us.

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Speaker 1: That was peijuang Lu, economist of Fidelity International Asia, speaking

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Speaker 1: of Bloomberg's annabel Rulers in April Honk. Coming up next,

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Speaker 1: we'll hear from Bloomberg's Mark Cranfield for the check of

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Speaker 1: the markets. Welcome back to the Daybreak Asia podcast. I'm

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Speaker 1: Dan Schwartzman. Doug Prisner's off this week Asian stocks opened

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Speaker 1: hire as a planned meeting between President Trump and Chinese

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Speaker 1: President she is nerves around trade tensions. The dollar was

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Speaker 1: a little change ahead of US inflation data, with investors

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Speaker 1: expecting the Federal Reserve to announce a rate cut next

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Speaker 1: week despite inflation being above the Fed's goal. For more,

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Speaker 1: we turn to Mark Cranfield, Bloomberg's life strategist. He spoke

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Speaker 1: to Bloomberg Xannabelle Rulers in April hon on the Asia trade.

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Speaker 3: There's no lack of things to digest. We had Japan

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Speaker 3: CPI numbers, we're reading out for the USCBI ones and

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Speaker 3: all this coming ahead of the Fed and boj meets

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Speaker 3: next week. Why is your take on where things go

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Speaker 3: from here?

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Speaker 6: Well, you haven't even mentioned Trump and Sea meeting as well,

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Speaker 6: which we hope they will meet, that they will not

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Speaker 6: be canceled. That's a very big deal for financial markets. Yeah,

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Speaker 6: as Belle was saying, the tailwinds are good for markets.

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Speaker 6: This CPI report that comes out from the US tonight

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Speaker 6: is a little bit isolated because we've been lacking data

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Speaker 6: from America. Most of it has been canceled over the

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Speaker 6: past few weeks because of the government shutdown. So we're

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Speaker 6: going to get this one piece of data. No doubt

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Speaker 6: there'll be knee reactions whatever it is, whether it's high

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Speaker 6: or low, but the Fed will have difficulty in making

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Speaker 6: too much of it because it is just one thing

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Speaker 6: and they've been missing a lot of the other reports.

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Speaker 6: GDPs and employment data. Is that kind of very focused

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Speaker 6: on the job's numbers. Now there's a jobless claims report

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Speaker 6: we're expecting to see, but it's also backdated. The indications

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Speaker 6: from that will probably be that the employment situation is

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Speaker 6: still fairly soft, and that's really what the Eddie is

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Speaker 6: more interested in, along with the possibility of stopping their

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Speaker 6: reductions in the balance sheet. Now the FED balance sheet

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Speaker 6: became very big. It's a hot topic of conversation whether

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Speaker 6: or not it's time for them to stop reducing it

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Speaker 6: and effectively help the situation in the America. It's another

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Speaker 6: form of easing. If they do that, it's not as

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Speaker 6: good as an interest rate cut, but along with an

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Speaker 6: interest rate cut, it works very nicely and it would

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Speaker 6: mean that investors would be pretty happy. That may be

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Speaker 6: announced next week.

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Speaker 5: You mentioned that the Trump she meeting and how important

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Speaker 5: it is for investors. What does it mean for the

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Speaker 5: UE because we just had the planning as well wrapping up,

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Speaker 5: but that this prospect for any sort of near term

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Speaker 5: stimulus is dimmed, that's probably a negative for the YU one.

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Speaker 5: And you can ad the fixing as well, and we're

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Speaker 5: consistently being anchored around that seven to ten level.

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Speaker 6: The plneminent of the five year plan itself doesn't tell

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Speaker 6: you a great deal about the currency. However, where the

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Speaker 6: PBOC will be starting to get concerned is the exchange

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Speaker 6: rates in relation to the yen and the Korean one.

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Speaker 6: Now they're big trading competitors for China, and those currencies

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Speaker 6: have been waking pretty fast against the Chinese currency. Now

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Speaker 6: there will be a certain point at which we've been

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Speaker 6: seeing very steady fixings from the PBOC every day. The

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Speaker 6: daily fixing has been implying that the yuan should stay

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Speaker 6: on a strong path. There will be a limit to

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Speaker 6: how far the Chinese Central Bank is willing to do

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Speaker 6: that if the yen and the one go to even

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Speaker 6: weaker territory. Because those cross rates are very important. They're

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Speaker 6: getting close to levels that the PBOC alarm bells will

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Speaker 6: be going off in their headquarters pretty soon unless career

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Speaker 6: in Japan do something to stop the slide in their currency.

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Speaker 6: If they don't, the response may come from China. Will

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Speaker 6: we will see it through the daily fixing suddenly, Lee,

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Speaker 6: they will step back and they will allow the dollar

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Speaker 6: you are fixing to go higher, and that will be

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Speaker 6: an indication that they are worried about what's happening in

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Speaker 6: relation to other Asian currencies. We're not there yet, but

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Speaker 6: you can see it's pretty much on their radar because

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Speaker 6: those cross rates are close to very key levels for

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Speaker 6: the Central Bank of China.

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Speaker 3: Also on the reader. I guess when you look at

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Speaker 3: this interplay of currencies is how the weakness and the

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Speaker 3: yen and the Korean one comes. These are countries that

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Speaker 3: have investment pledges as part of their trade deals with

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Speaker 3: the US. I mean, is that just another layer of

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Speaker 3: complication when it comes to the EFS.

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Speaker 6: Moves definitely if they don't make it clear about how

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Speaker 6: they're going to come up with that money. So there

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Speaker 6: are many ways they could do it. If it's just

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Speaker 6: purephon exchange transactions, that's a concern for the market because

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Speaker 6: that is just outright buying of US dollars and that

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Speaker 6: would just make the current situation even worse. They could

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Speaker 6: do swaps that will be a neutral effect on the market.

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Speaker 6: They could raise them via debt and do off market

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Speaker 6: swaps with the Federal Reserve. There are many ways of

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Speaker 6: messaging it and doing it in a way that doesn't

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Speaker 6: really impact the foreign exchange market. But if they need

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Speaker 6: to make that clear to investors. At the moment, they're

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Speaker 6: in a bit of a vacuum. They're not really sure.

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Speaker 6: They've seen these big numbers three hundred and fifty billion

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Speaker 6: or more, and they're getting a little bit worried because

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Speaker 6: they're assuming that the central banks they're just going to

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Speaker 6: go straight in the market and buy the fresh US dollars,

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Speaker 6: And that's partly why you're seeing the currency moves in

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Speaker 6: that direction. It's also related to central bank policy as well,

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Speaker 6: so it would help a lot if the authorities in

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Speaker 6: Japan and Korea made it clear to investors how are

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Speaker 6: they're going to go about financing it and making sure

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Speaker 6: it's a relatively neutral impact on the currency markets.

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Speaker 1: That was Mark Cranfield, Bloomberg's m Live strategist, speaking of

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Speaker 1: Bloomberg's Aviril Hunk and NFL drulers on the Asia trade.

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Speaker 6: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 6: Asia Edition podcast.

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Speaker 2: Each weekday, we look at the story shaping markets, finance,

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Speaker 2: and geopolitics in the Asia Pacific.

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Speaker 1: You can find us on Apple, Spotify, the Bloomberg Podcast

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Speaker 1: YouTube channel, or anywhere else you listen.

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Speaker 6: Join us again tomorrow for insight on the market moves

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Speaker 6: from Hong Kong to Singapore and Australia.

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Speaker 2: I'm Doug Prisoner and this is Bloomberg