April 23, 2024 • 22 mins
Featuring:
Alex Barinka, Bloomberg Tech Reporter, sits down with us to discuss how TikTok is preparing for a legal fight in the wake of a potential ban in the US. Plus, how the EU is thinking about TikTok's new app.
Pamela Ambler, APAC Investor Intelligence Head at JLL, sits down with us in Singapore to discuss her perspectives on APAC markets.
Finbarr Flynn, Bloomberg Asia Credit Markets Editor, joins us from Tokyo to discuss South Korea's real estate market, and the exposure issues some developers are facing.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Daybreak Asia podcast. I'm Doug Krisner. You can join Brian
Curtis and myself for the stories, making news and moving
markets in the APEC region. You can subscribe to the
show anywhere you get your podcast and always on Bloomberg Radio,
(00:23):
the Bloomberg Terminal, and the Bloomberg Business App well.
Speaker 2 (00:27):
The European Union has opened a new probe into TikTok's
parent company by Dance. Bloomberg's Joanne Wong has more from
Hong Kong.
Speaker 3 (00:35):
The EU is looking into whether the new TikTok light
app has violated a new content law. The app promise
is to pay users through a points system. The European
Commission said that might have an addictive effect on users.
TikTok was given twenty four hours to deliver a risk
assessment to the Commission, otherwise the app could be fined
up to one percent of its total annual income. The
(00:57):
EU also said it plans to order TikTok to to
span the apps reward system until the future can be
fully assessed. In Hong Kong, joined Wong Bloomberg Radio.
Speaker 2 (01:07):
And joining US Now for further discussion on this is
Alex Barinka, Bloomberg Tech Reporter taking the closer look. So, Alex,
the EU wants TikTok Light to do a proper risk assessment.
That sounds pretty reasonable. But on the other hand, the
EU is critical that users can be rewarded through a
points system because that might have an addictive effect on them. Now,
(01:27):
some might say that's overreach, but I'm sure it's more
nuanced than that. Walk us through it.
Speaker 4 (01:34):
It certainly is, and so the EU is given the
company twenty four hours on this risk assessment or resk
fines up to one percent of its annual income. And
the kind of regulations over there have been much more protective,
we'll say, over its users than in other countries like
in the US. It's not the first time that the
(01:54):
EU's has got involved looking at the app's addictive design,
looking at screen time limits and privacy settings. It's been
scrutinizing and investigating TikTok under the Digital Services Act on
its main TikTok app, so under the umbrella Byte dance,
whether it's TikTok or this new TikTok Light app that
pays users through a point system. It does seem that
(02:17):
the European Commission is being a lot more thoughtful about
what it allows tech giants to introduce to its users
within the block and making sure that they won't have
a negative effect on the citizens.
Speaker 1 (02:28):
There big question mark over the future of this company
with passage over the weekend of the House bill. As
you know, Alex, I mean you either divest control of
TikTok and I'm talking here about the Chinese parent Byte Dance,
or face a ban in the US. Now today, the
company's essentially saying it will fight this measure in court.
(02:48):
Do you think they have a legal leg to stand on?
Speaker 4 (02:51):
They will certainly try so. As you mentioned, this is
the US divest or ban bill that flew through the
House on Saturday, tied up with the Ukraine Israel Aid bill,
and it's expected to get a vote in the Senate
as soon as this week, could be as soon as tomorrow,
with Presidential Biden saying he would sign it immediately.
Speaker 2 (03:09):
Now.
Speaker 4 (03:10):
Bite Dance has said, according to a person familiar with
the matter, that it expects it could get a restraining
order that could kind of draw out this legal battle
to more than a year. We have reported in the
past that any kind of divestiture the company sees it
as the absolute last resort. So hearing that now with
this bill almost an inevitability in its passage, that they're
(03:32):
looking at their legal options isn't so much of a surprise.
What has been a surprise to me, frankly, as is,
in the last week they've been relatively quiet. We've seen
folks like their VP of policy Michael Beckerman, give interviews
to TikTokers, talking to the TikTok audience. We've seen kind
of small communications from them. But this does mean that
(03:53):
the first kind of big wave of getting TikTok's official
public point of view might actually be around some of
these legal arguments they make if this bill does get
signed into law as soon as this week.
Speaker 2 (04:06):
To what degree is TikTok in the United States really
amping up, muscling up on it on its lobbying.
Speaker 4 (04:14):
It has been muscling up quite a lot, so last
year was its biggest year on record for lobbying in
the United States. And it's an interesting distinction with TikTok.
TikTok actually doesn't file lobbying documents. It's Byte Dance that's
doing all the lobbying on behalf of them. We just
got the new numbers for TikTok's parent Byte Dance, and
(04:36):
it's said that they spent two point seven million dollars
in the first quarter of this year. That's up from
one point six million dollars in the same period in
twenty twenty three. So you can see that they are
kind of muscling up their lobbying effort and have been. Now,
if you're a person like me who's been watching the
progression of bills and legislation against TikTok working its way through.
(04:59):
Now we're sitting here on the eve of one of
those bills actually passing, you do have to ask how
much are these high powered lobbyists actually having an effect
in DC. Folks who are watching the passes of this
bill kind of looming might say not as much as
they might hope.
Speaker 1 (05:16):
You know, I understand the being compelled to try to
fight it in court, But if you look at the
twenty seventeen National Intelligence Law in China, it's pretty clear
there's a legal obligation for Chinese companies to turn over data,
collect it abroad and domestically. This just fortifies the US
position that this is a national security issue. One of
(05:36):
the questions that I was wondering about is whether or
not the Chinese government could use the TikTok issue as
a way of negotiating what it would like to get
from the US government in any way. Do you think
that's possible.
Speaker 4 (05:49):
I mean, when with this bill passed last week, it
was quickly or it was introduced last week, that the
House was going to do this in this aid package,
that news was quickly overshadowed by President Joe Biden having
some kind of strong words against China in a meeting
just a few hours later. So I wouldn't be surprised
if this gets tied up in this kind of back
(06:10):
and forth discourse or tension. We do know that Beijing,
the Chinese government, would stand in the way of any
kind of divestiture. Divestiture of TikTok from ByteDance would require
approval from Chinese regulators, and a person familiar with the
matter told us in just the last twenty four hours,
the government in China has made it clear it wants
(06:30):
neither TikTok's prized algorithm or that really valuable data to
fall into American's hands. So certainly this is kind of
another point of potential tension when it comes to the
back and forth between Washington and Beijing.
Speaker 2 (06:46):
Yeah, this is certainly going to be with us for
a while. If I had to take the over under
on ten discussions with you over the next year on this,
I'd probably shake the over I wanted to go back
to the Europeans Union story because we know that TikTok
is planning to fight in the United States and this
is pretty new, this this new set of restrictions that
the EU is putting on by dance in TikTok. But
(07:09):
in some ways it highlights the real difference between the
systems in the West and in China, because one of
the things that the EU is complaining about with this
is that it's really like almost paying users to watch
videos and run up the numbers of TikTok, And that
seems kind of weird or wrong or something. But it's
(07:30):
a little bit like by do I mean by do
actually rewards those companies that want their searches to come
in high, I mean those companies are willing to pay
for it. So it really does highlight the difference between
the systems. And I wonder whether or not you know,
there's a place for TikTok in a place like the
European Union, which is heavy on the regulation side.
Speaker 4 (07:52):
Anyway, in my industry or folks in the industry that
I cover, we call it the attention economy, right where
the actual kind of value that these companies are getting
out of you is your attention. So certainly, as you know,
TikTok has really changed the game in the social media
industry where it's not about who you follow, it's about
showing you things that you're interested in, with almost an
(08:15):
addictive quality of keeping you in the app for a
longer and longer time. So as the EU kind of
grapples with TikTok, I would also think it's a decent
argument to make that you would have to look at
YouTube shorts or Instagram reels or Facebook reels along the
same lines, because some of the kind of core of
how those apps work have been, you know, lifted from
(08:36):
TikTok and are kind of striving to do the same
thing of keeping you there, keeping you scroll and keeping
your attention for longer and longer, because that's where they
find value both in the app and for the advertisers
that are willing to pay for your eyeballs.
Speaker 1 (08:49):
We have to remember this as a monster company. The
parent Byte Dance. I think it's privately held a valuation
of around two hundred and sixty eight billion. I think
TikTok's you business is closer to between forty and fifty
billion and valuation. Alex, always a pleasure. Thanks for making
time to chat with us, Alex Baranka, Bloomberg Tech reporter
(09:09):
talking today about TikTok.
Speaker 2 (09:17):
Tamala embler Apak, investor intelligence head at jll Pamla, Thank
you very much for joining the program. I think one
question on a lot of people's minds really across the
region is when we might see a little bit of
progress on getting a handle on China's property market. Do
you see that anytime this year?
Speaker 5 (09:40):
Yeah, Well, when it comes to China from the capital
market standpoint, we are already beginning to see activity picking
up from before. So just looking at our Q one numbers,
it is a decline of roughly twenty percent year over year.
But when you look at what has been the active
capital sources, it's not only the local developers and foreign
(10:02):
investors that have been offloading assets at discounts. Insurers are
also looking for opportunities to make acquisitions taking advantage of
those dislocated pricing.
Speaker 1 (10:14):
So I'm curious as to whether or not in everything
that you're looking at that there is opportunity, whether it's
in commercial real estate or any sector of the market
that has been so badly beaten down so ignored, whether
you're finding potential opportunity.
Speaker 2 (10:32):
Yeah.
Speaker 5 (10:32):
Well, if you think about investors their thoughts around the
stock market, that people are the most familiar with, the
buying opportunity is always when there is a pricing dislocation,
when there is value to be found in the market,
and similarly in commercial real estate, it is the same situation.
(10:53):
People are not looking to act until they believe that
prices or valuations is bottoming. Diference is when it comes
to public markets, you're talking about being able to mark
to market, and so to identify a bottom in pricing
is easier than a less liquid market like commercial real estate.
But in reality, because of what we're seeing in terms
(11:15):
of the trades that have taken place, especially in Q
four and Q one, it's giving investors new benchmarks to
look at for pricing, and that's going to compel investors
to then act.
Speaker 2 (11:30):
One of the dislocations probably can be seen, I would
imagine on of Hong Kong property and the fact that
the economy has struggled really of late, because of what's
happening in China, because of the pandemic, at a time
when US interest rates were high, and because of the
fixed exchange link, you had high interest rates here in
(11:51):
that kind of environment, at some point that changes. Do
you think that when that happens, when the FED finally
starts cutting interest rates, that it will sort of be
you know, when the sun comes out for Hong Kong property,
or do you think that that ship has already sailed.
Speaker 5 (12:09):
Well. Absolutely, Hong Kong is one of the markets that
time and time again they have gone through challenges and
come out the other side in a very resilient manner.
They have proven that they can bounce back. It's happened
before in the Asian Financial Crisis. It's happened after SARS.
(12:29):
It's happened of course with COVID, where we saw a
search in for hotels for example rev Har a jump
in terms of the demand. And also we're coming seeing
that from from the retail standpoint. So sure, it's most
likely that this time around it's taking a bit longer
(12:51):
than expected, because as you mentioned, China's recovery is also
also slower than expect did. But the situation with Hong
Kong also is that connection with the mainland really allows
it to have a very very unique position. It is
(13:14):
basically the market where capital can access essentially one of
the world's largest economies.
Speaker 1 (13:20):
We were just talking about the problems with the shadow
banking industry in South Korea, particularly as it relates to
real estate, and I'm wondering in this conversation, by the way,
there was the issue of the government really monitoring the
situation and stepping in. We have seen a very very
reluctant Chinese response to the problems with the property sector,
(13:43):
maybe a little bit grudgingly. They have made some adjustments
around the edges, but I think there's been this belief
that leadership wants to deflate this bubble in an orderly way.
Is it progressing in an orderly way still or do
you feel that there is some risk that maybe still
in a system that could be very damaging.
Speaker 5 (14:05):
Absolutely, and I think this is a really important question.
The reason why I think a lot of investors in
market watchers are waiting for the PBOC to take more
action and they are not. Is you got to look
at the bigger picture, which is the global macro situation.
So we have the FED, which at one point at
(14:25):
the beginning of the year we're talking about quite aggressive
rate cuts, which has almost reversed itself in terms of
that narrative and what markets are pricing in. So of
course the PBOC is looking at that very carefully because
when you look at policy diversions, historically speaking, that has
created large amounts of capital outflow from China. China does
(14:48):
not want that to happen, and to protect its economy
and to grow its economy, it has to be very
thoughtful about the stimulus in which it provides to support
the economy because you're looking at multiple factors to propel investments.
And another consideration is, of course there are, as you mentioned,
(15:14):
thoughtful actions taken by the government, whether that is asking
slightly more well capitalized insurers to step in to support
the developers through this challenging period of time. So there
are multiple prongs. I believe the government is utilizing.
Speaker 2 (15:33):
Pamela Ambler Apak Intelligence investor intelligence head at j L L.
Speaker 1 (15:47):
Well, there are signs of stress building in South Korea's
shadow banking industry. Delinquency rates as one measure for a
key group of Korean banks right now is nearly double
what it was last year at our round six and
a half percent. Let's take a closer look now with
Finbar Flynn, Bloomberg's Asia Credit markets editor, who joins us
from the Japanese capital Finnbar, thank you so much for
(16:10):
making time with us. How much of this is actually
a direct exposure to real estate When we talk about
the extent to which the shadow banking industry in South
Korea has grown so dramatically.
Speaker 6 (16:23):
Hey, good morning, thank you, it actually is all real estate.
It comes down to real estate all across the board.
Because like in money markets, when cash was cheap and
interest rates were low, these highly levered bets, and they're
especially highly levered in Korea based on how they actually
(16:45):
fund these deals. People poured into them and when rates
went up, things started to give.
Speaker 2 (16:52):
So in the old days we refer to a shadow
banking lot in China is very much considered a negative,
and now it's called private credit and it seems to
have a much better reputation in the West. But one
thing that runs through all.
Speaker 6 (17:05):
Of this can be liquidity issues, correct, There's no doubt
about that. And I like the point about the difference
between shadow banking and private credit in Korea. It is
basically these smaller financial institutions, smaller savings banks and smaller
securities companies who've taken on most of this debt. It
(17:28):
looked like a good idea at the time, but Korea
has a history of these repeated sort of bubbles in
its commercial property sector, and people are looking out for
more headlines in the second half.
Speaker 1 (17:40):
So what does this mean for systemic risk in the
financial system right now in South Korea?
Speaker 6 (17:48):
So basically the government in South Korea is throwing everything
at this and they're going in there. They're buying property.
The property, they're putting up guarantees against existing loans and
new loans. So what is the So that the downcase scenario,
the downcasse scenario is that we have more we have
more restructurings, and it could cause the Bank of Korea
(18:10):
to a cup more than it has signaled this year.
It could cause the government to pour money into it.
So this has brought systemic implications because about a third
to four tenths of the entire economy is in this finnbar.
Speaker 2 (18:29):
Is there a lesson here for other jurisdictions in Asia?
I mean, is this an issue that's likely to be
repeated in other countries?
Speaker 6 (18:39):
I certainly think there is. And I would say it's
beyond Asia because we've seen the creeks and the cracks
in property from New York to Los Angeles, to Berlin
to London. So there are lots of places that have
these issues. But they're just the Bank of Korea a
height quicker, so they are facing these issues probably a
(19:02):
little bit earlier on.
Speaker 1 (19:03):
I'm wondering whether the regulators in South Korea fear worst
case scenarios something like what Japan went through thirty years ago,
where you have bank failures that it's just more than
a couple of small banks that have problems, you know,
in stress that may be building on their balance sheets.
Whether there is a real risk of bank failures at scale,
(19:23):
is that a distinct possibility.
Speaker 6 (19:26):
Well, the good news there is good news. The good
news is not the bigger banks. They are very well
capitalized in the top four or five banks, So in
terms of the bigger banks, the actual scenario more likely
is that theyably buying up the smaller banks. That's not
to say that the government doesn't have to be very
careful because it's not just the commercial property. South Korea
(19:49):
has the most housing debt per capita almost of any
country in the world, so they cannot allow these two
things to meld together, which would be really systemic.
Speaker 2 (19:59):
So what can you tell us about some of the
restructurings that we've seen, both successful and unsuccessful, and what
the message to be drawn is.
Speaker 6 (20:09):
So we have one key case going on, and to
be honest, this is still I would say in its
early stages. We just had the election in South Korea.
People had expected things to be kept on board in
the first few months of the year and then for
the government and authorities to become a little bit more
stringent in the second half. But we have a company
(20:30):
called Tayung. They surprise Marcus at the end of twenty
twenty three when they said they needed a restructure debt.
They're a large mid sized lender or excuse me, quite
a construction company, and they have a vote at the
end of this month, and that will basically mean that
lenders have to take an equity swap of fifty percent
of their debt. So they'll be taking fifty percent equity
(20:51):
for their debts, so they'll be basically taking a cut,
and then the rest of the fifty will all depend
if the company can pay it back. But interestingly, people
said this company young it may be the first, but
it's not the last.
Speaker 1 (21:02):
It's kind of staggering when you look at the numbers.
I'm bringing up data on overall GDP for South Korea
in dollar terms. The latest data that I have is
for twenty twenty two one point six seven trillion, and
we're talking about six hundred and seventy one billion dollars
worth right now of exposure to this debt in real
(21:23):
estate alone. I mean, when you consider the amount of
money relative to annual GDP, it's just it's an amazing figure.
Speaker 4 (21:30):
It is.
Speaker 6 (21:31):
It's an astounding figure. And the only the only upside
is I think, and this is a good good thing
for the South Korean economies. They obviously are a huge exporter,
so they are, and they're a huge beneficiary of the AI,
you know, whole trend, so the economy that could lift
(21:52):
the economy sufficiently so they don't have to suffer too much.
But it's a really difficult balancing act they have in
the next couple of months.
Speaker 1 (22:00):
No doubt about it. And Finbar, thank you so much
for joining us and helping us bring a little clarity
to the story on the signs of stress building in
the shadow banking industry in South Korea. Fin Bar Flynn,
a Bloomberg Asia Credit Markets editor, joining us from our
studios in Tokyo here on Daybreak Asia.
Speaker 2 (22:18):
This is the Bloomberg Daybreak Asia podcast, bringing you the
stories making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
the podcast on Apple, Spotify, or anywhere else you listen
and always on Bloomberg Radio, the Bloomberg Terminal, and the
(22:40):
Bloomberg Business App.
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Daybreak Asia podcast. I'm Doug Krisner. You can join Brian
Curtis and myself for the stories, making news and moving
markets in the APEC region. You can subscribe to the
show anywhere you get your podcast and always on Bloomberg Radio,
(00:23):
the Bloomberg Terminal, and the Bloomberg Business App well.
Speaker 2 (00:27):
The European Union has opened a new probe into TikTok's
parent company by Dance. Bloomberg's Joanne Wong has more from
Hong Kong.
Speaker 3 (00:35):
The EU is looking into whether the new TikTok light
app has violated a new content law. The app promise
is to pay users through a points system. The European
Commission said that might have an addictive effect on users.
TikTok was given twenty four hours to deliver a risk
assessment to the Commission, otherwise the app could be fined
up to one percent of its total annual income. The
(00:57):
EU also said it plans to order TikTok to to
span the apps reward system until the future can be
fully assessed. In Hong Kong, joined Wong Bloomberg Radio.
Speaker 2 (01:07):
And joining US Now for further discussion on this is
Alex Barinka, Bloomberg Tech Reporter taking the closer look. So, Alex,
the EU wants TikTok Light to do a proper risk assessment.
That sounds pretty reasonable. But on the other hand, the
EU is critical that users can be rewarded through a
points system because that might have an addictive effect on them. Now,
(01:27):
some might say that's overreach, but I'm sure it's more
nuanced than that. Walk us through it.
Speaker 4 (01:34):
It certainly is, and so the EU is given the
company twenty four hours on this risk assessment or resk
fines up to one percent of its annual income. And
the kind of regulations over there have been much more protective,
we'll say, over its users than in other countries like
in the US. It's not the first time that the
(01:54):
EU's has got involved looking at the app's addictive design,
looking at screen time limits and privacy settings. It's been
scrutinizing and investigating TikTok under the Digital Services Act on
its main TikTok app, so under the umbrella Byte dance,
whether it's TikTok or this new TikTok Light app that
pays users through a point system. It does seem that
(02:17):
the European Commission is being a lot more thoughtful about
what it allows tech giants to introduce to its users
within the block and making sure that they won't have
a negative effect on the citizens.
Speaker 1 (02:28):
There big question mark over the future of this company
with passage over the weekend of the House bill. As
you know, Alex, I mean you either divest control of
TikTok and I'm talking here about the Chinese parent Byte Dance,
or face a ban in the US. Now today, the
company's essentially saying it will fight this measure in court.
(02:48):
Do you think they have a legal leg to stand on?
Speaker 4 (02:51):
They will certainly try so. As you mentioned, this is
the US divest or ban bill that flew through the
House on Saturday, tied up with the Ukraine Israel Aid bill,
and it's expected to get a vote in the Senate
as soon as this week, could be as soon as tomorrow,
with Presidential Biden saying he would sign it immediately.
Speaker 2 (03:09):
Now.
Speaker 4 (03:10):
Bite Dance has said, according to a person familiar with
the matter, that it expects it could get a restraining
order that could kind of draw out this legal battle
to more than a year. We have reported in the
past that any kind of divestiture the company sees it
as the absolute last resort. So hearing that now with
this bill almost an inevitability in its passage, that they're
(03:32):
looking at their legal options isn't so much of a surprise.
What has been a surprise to me, frankly, as is,
in the last week they've been relatively quiet. We've seen
folks like their VP of policy Michael Beckerman, give interviews
to TikTokers, talking to the TikTok audience. We've seen kind
of small communications from them. But this does mean that
(03:53):
the first kind of big wave of getting TikTok's official
public point of view might actually be around some of
these legal arguments they make if this bill does get
signed into law as soon as this week.
Speaker 2 (04:06):
To what degree is TikTok in the United States really
amping up, muscling up on it on its lobbying.
Speaker 4 (04:14):
It has been muscling up quite a lot, so last
year was its biggest year on record for lobbying in
the United States. And it's an interesting distinction with TikTok.
TikTok actually doesn't file lobbying documents. It's Byte Dance that's
doing all the lobbying on behalf of them. We just
got the new numbers for TikTok's parent Byte Dance, and
(04:36):
it's said that they spent two point seven million dollars
in the first quarter of this year. That's up from
one point six million dollars in the same period in
twenty twenty three. So you can see that they are
kind of muscling up their lobbying effort and have been. Now,
if you're a person like me who's been watching the
progression of bills and legislation against TikTok working its way through.
(04:59):
Now we're sitting here on the eve of one of
those bills actually passing, you do have to ask how
much are these high powered lobbyists actually having an effect
in DC. Folks who are watching the passes of this
bill kind of looming might say not as much as
they might hope.
Speaker 1 (05:16):
You know, I understand the being compelled to try to
fight it in court, But if you look at the
twenty seventeen National Intelligence Law in China, it's pretty clear
there's a legal obligation for Chinese companies to turn over data,
collect it abroad and domestically. This just fortifies the US
position that this is a national security issue. One of
(05:36):
the questions that I was wondering about is whether or
not the Chinese government could use the TikTok issue as
a way of negotiating what it would like to get
from the US government in any way. Do you think
that's possible.
Speaker 4 (05:49):
I mean, when with this bill passed last week, it
was quickly or it was introduced last week, that the
House was going to do this in this aid package,
that news was quickly overshadowed by President Joe Biden having
some kind of strong words against China in a meeting
just a few hours later. So I wouldn't be surprised
if this gets tied up in this kind of back
(06:10):
and forth discourse or tension. We do know that Beijing,
the Chinese government, would stand in the way of any
kind of divestiture. Divestiture of TikTok from ByteDance would require
approval from Chinese regulators, and a person familiar with the
matter told us in just the last twenty four hours,
the government in China has made it clear it wants
(06:30):
neither TikTok's prized algorithm or that really valuable data to
fall into American's hands. So certainly this is kind of
another point of potential tension when it comes to the
back and forth between Washington and Beijing.
Speaker 2 (06:46):
Yeah, this is certainly going to be with us for
a while. If I had to take the over under
on ten discussions with you over the next year on this,
I'd probably shake the over I wanted to go back
to the Europeans Union story because we know that TikTok
is planning to fight in the United States and this
is pretty new, this this new set of restrictions that
the EU is putting on by dance in TikTok. But
(07:09):
in some ways it highlights the real difference between the
systems in the West and in China, because one of
the things that the EU is complaining about with this
is that it's really like almost paying users to watch
videos and run up the numbers of TikTok, And that
seems kind of weird or wrong or something. But it's
(07:30):
a little bit like by do I mean by do
actually rewards those companies that want their searches to come
in high, I mean those companies are willing to pay
for it. So it really does highlight the difference between
the systems. And I wonder whether or not you know,
there's a place for TikTok in a place like the
European Union, which is heavy on the regulation side.
Speaker 4 (07:52):
Anyway, in my industry or folks in the industry that
I cover, we call it the attention economy, right where
the actual kind of value that these companies are getting
out of you is your attention. So certainly, as you know,
TikTok has really changed the game in the social media
industry where it's not about who you follow, it's about
showing you things that you're interested in, with almost an
(08:15):
addictive quality of keeping you in the app for a
longer and longer time. So as the EU kind of
grapples with TikTok, I would also think it's a decent
argument to make that you would have to look at
YouTube shorts or Instagram reels or Facebook reels along the
same lines, because some of the kind of core of
how those apps work have been, you know, lifted from
(08:36):
TikTok and are kind of striving to do the same
thing of keeping you there, keeping you scroll and keeping
your attention for longer and longer, because that's where they
find value both in the app and for the advertisers
that are willing to pay for your eyeballs.
Speaker 1 (08:49):
We have to remember this as a monster company. The
parent Byte Dance. I think it's privately held a valuation
of around two hundred and sixty eight billion. I think
TikTok's you business is closer to between forty and fifty
billion and valuation. Alex, always a pleasure. Thanks for making
time to chat with us, Alex Baranka, Bloomberg Tech reporter
(09:09):
talking today about TikTok.
Speaker 2 (09:17):
Tamala embler Apak, investor intelligence head at jll Pamla, Thank
you very much for joining the program. I think one
question on a lot of people's minds really across the
region is when we might see a little bit of
progress on getting a handle on China's property market. Do
you see that anytime this year?
Speaker 5 (09:40):
Yeah, Well, when it comes to China from the capital
market standpoint, we are already beginning to see activity picking
up from before. So just looking at our Q one numbers,
it is a decline of roughly twenty percent year over year.
But when you look at what has been the active
capital sources, it's not only the local developers and foreign
(10:02):
investors that have been offloading assets at discounts. Insurers are
also looking for opportunities to make acquisitions taking advantage of
those dislocated pricing.
Speaker 1 (10:14):
So I'm curious as to whether or not in everything
that you're looking at that there is opportunity, whether it's
in commercial real estate or any sector of the market
that has been so badly beaten down so ignored, whether
you're finding potential opportunity.
Speaker 2 (10:32):
Yeah.
Speaker 5 (10:32):
Well, if you think about investors their thoughts around the
stock market, that people are the most familiar with, the
buying opportunity is always when there is a pricing dislocation,
when there is value to be found in the market,
and similarly in commercial real estate, it is the same situation.
(10:53):
People are not looking to act until they believe that
prices or valuations is bottoming. Diference is when it comes
to public markets, you're talking about being able to mark
to market, and so to identify a bottom in pricing
is easier than a less liquid market like commercial real estate.
But in reality, because of what we're seeing in terms
(11:15):
of the trades that have taken place, especially in Q
four and Q one, it's giving investors new benchmarks to
look at for pricing, and that's going to compel investors
to then act.
Speaker 2 (11:30):
One of the dislocations probably can be seen, I would
imagine on of Hong Kong property and the fact that
the economy has struggled really of late, because of what's
happening in China, because of the pandemic, at a time
when US interest rates were high, and because of the
fixed exchange link, you had high interest rates here in
(11:51):
that kind of environment, at some point that changes. Do
you think that when that happens, when the FED finally
starts cutting interest rates, that it will sort of be
you know, when the sun comes out for Hong Kong property,
or do you think that that ship has already sailed.
Speaker 5 (12:09):
Well. Absolutely, Hong Kong is one of the markets that
time and time again they have gone through challenges and
come out the other side in a very resilient manner.
They have proven that they can bounce back. It's happened
before in the Asian Financial Crisis. It's happened after SARS.
(12:29):
It's happened of course with COVID, where we saw a
search in for hotels for example rev Har a jump
in terms of the demand. And also we're coming seeing
that from from the retail standpoint. So sure, it's most
likely that this time around it's taking a bit longer
(12:51):
than expected, because as you mentioned, China's recovery is also
also slower than expect did. But the situation with Hong
Kong also is that connection with the mainland really allows
it to have a very very unique position. It is
(13:14):
basically the market where capital can access essentially one of
the world's largest economies.
Speaker 1 (13:20):
We were just talking about the problems with the shadow
banking industry in South Korea, particularly as it relates to
real estate, and I'm wondering in this conversation, by the way,
there was the issue of the government really monitoring the
situation and stepping in. We have seen a very very
reluctant Chinese response to the problems with the property sector,
(13:43):
maybe a little bit grudgingly. They have made some adjustments
around the edges, but I think there's been this belief
that leadership wants to deflate this bubble in an orderly way.
Is it progressing in an orderly way still or do
you feel that there is some risk that maybe still
in a system that could be very damaging.
Speaker 5 (14:05):
Absolutely, and I think this is a really important question.
The reason why I think a lot of investors in
market watchers are waiting for the PBOC to take more
action and they are not. Is you got to look
at the bigger picture, which is the global macro situation.
So we have the FED, which at one point at
(14:25):
the beginning of the year we're talking about quite aggressive
rate cuts, which has almost reversed itself in terms of
that narrative and what markets are pricing in. So of
course the PBOC is looking at that very carefully because
when you look at policy diversions, historically speaking, that has
created large amounts of capital outflow from China. China does
(14:48):
not want that to happen, and to protect its economy
and to grow its economy, it has to be very
thoughtful about the stimulus in which it provides to support
the economy because you're looking at multiple factors to propel investments.
And another consideration is, of course there are, as you mentioned,
(15:14):
thoughtful actions taken by the government, whether that is asking
slightly more well capitalized insurers to step in to support
the developers through this challenging period of time. So there
are multiple prongs. I believe the government is utilizing.
Speaker 2 (15:33):
Pamela Ambler Apak Intelligence investor intelligence head at j L L.
Speaker 1 (15:47):
Well, there are signs of stress building in South Korea's
shadow banking industry. Delinquency rates as one measure for a
key group of Korean banks right now is nearly double
what it was last year at our round six and
a half percent. Let's take a closer look now with
Finbar Flynn, Bloomberg's Asia Credit markets editor, who joins us
from the Japanese capital Finnbar, thank you so much for
(16:10):
making time with us. How much of this is actually
a direct exposure to real estate When we talk about
the extent to which the shadow banking industry in South
Korea has grown so dramatically.
Speaker 6 (16:23):
Hey, good morning, thank you, it actually is all real estate.
It comes down to real estate all across the board.
Because like in money markets, when cash was cheap and
interest rates were low, these highly levered bets, and they're
especially highly levered in Korea based on how they actually
(16:45):
fund these deals. People poured into them and when rates
went up, things started to give.
Speaker 2 (16:52):
So in the old days we refer to a shadow
banking lot in China is very much considered a negative,
and now it's called private credit and it seems to
have a much better reputation in the West. But one
thing that runs through all.
Speaker 6 (17:05):
Of this can be liquidity issues, correct, There's no doubt
about that. And I like the point about the difference
between shadow banking and private credit in Korea. It is
basically these smaller financial institutions, smaller savings banks and smaller
securities companies who've taken on most of this debt. It
(17:28):
looked like a good idea at the time, but Korea
has a history of these repeated sort of bubbles in
its commercial property sector, and people are looking out for
more headlines in the second half.
Speaker 1 (17:40):
So what does this mean for systemic risk in the
financial system right now in South Korea?
Speaker 6 (17:48):
So basically the government in South Korea is throwing everything
at this and they're going in there. They're buying property.
The property, they're putting up guarantees against existing loans and
new loans. So what is the So that the downcase scenario,
the downcasse scenario is that we have more we have
more restructurings, and it could cause the Bank of Korea
(18:10):
to a cup more than it has signaled this year.
It could cause the government to pour money into it.
So this has brought systemic implications because about a third
to four tenths of the entire economy is in this finnbar.
Speaker 2 (18:29):
Is there a lesson here for other jurisdictions in Asia?
I mean, is this an issue that's likely to be
repeated in other countries?
Speaker 6 (18:39):
I certainly think there is. And I would say it's
beyond Asia because we've seen the creeks and the cracks
in property from New York to Los Angeles, to Berlin
to London. So there are lots of places that have
these issues. But they're just the Bank of Korea a
height quicker, so they are facing these issues probably a
(19:02):
little bit earlier on.
Speaker 1 (19:03):
I'm wondering whether the regulators in South Korea fear worst
case scenarios something like what Japan went through thirty years ago,
where you have bank failures that it's just more than
a couple of small banks that have problems, you know,
in stress that may be building on their balance sheets.
Whether there is a real risk of bank failures at scale,
(19:23):
is that a distinct possibility.
Speaker 6 (19:26):
Well, the good news there is good news. The good
news is not the bigger banks. They are very well
capitalized in the top four or five banks, So in
terms of the bigger banks, the actual scenario more likely
is that theyably buying up the smaller banks. That's not
to say that the government doesn't have to be very
careful because it's not just the commercial property. South Korea
(19:49):
has the most housing debt per capita almost of any
country in the world, so they cannot allow these two
things to meld together, which would be really systemic.
Speaker 2 (19:59):
So what can you tell us about some of the
restructurings that we've seen, both successful and unsuccessful, and what
the message to be drawn is.
Speaker 6 (20:09):
So we have one key case going on, and to
be honest, this is still I would say in its
early stages. We just had the election in South Korea.
People had expected things to be kept on board in
the first few months of the year and then for
the government and authorities to become a little bit more
stringent in the second half. But we have a company
(20:30):
called Tayung. They surprise Marcus at the end of twenty
twenty three when they said they needed a restructure debt.
They're a large mid sized lender or excuse me, quite
a construction company, and they have a vote at the
end of this month, and that will basically mean that
lenders have to take an equity swap of fifty percent
of their debt. So they'll be taking fifty percent equity
(20:51):
for their debts, so they'll be basically taking a cut,
and then the rest of the fifty will all depend
if the company can pay it back. But interestingly, people
said this company young it may be the first, but
it's not the last.
Speaker 1 (21:02):
It's kind of staggering when you look at the numbers.
I'm bringing up data on overall GDP for South Korea
in dollar terms. The latest data that I have is
for twenty twenty two one point six seven trillion, and
we're talking about six hundred and seventy one billion dollars
worth right now of exposure to this debt in real
(21:23):
estate alone. I mean, when you consider the amount of
money relative to annual GDP, it's just it's an amazing figure.
Speaker 4 (21:30):
It is.
Speaker 6 (21:31):
It's an astounding figure. And the only the only upside
is I think, and this is a good good thing
for the South Korean economies. They obviously are a huge exporter,
so they are, and they're a huge beneficiary of the AI,
you know, whole trend, so the economy that could lift
(21:52):
the economy sufficiently so they don't have to suffer too much.
But it's a really difficult balancing act they have in
the next couple of months.
Speaker 1 (22:00):
No doubt about it. And Finbar, thank you so much
for joining us and helping us bring a little clarity
to the story on the signs of stress building in
the shadow banking industry in South Korea. Fin Bar Flynn,
a Bloomberg Asia Credit Markets editor, joining us from our
studios in Tokyo here on Daybreak Asia.
Speaker 2 (22:18):
This is the Bloomberg Daybreak Asia podcast, bringing you the
stories making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
the podcast on Apple, Spotify, or anywhere else you listen
and always on Bloomberg Radio, the Bloomberg Terminal, and the
(22:40):
Bloomberg Business App.
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