June 15, 2025 • 31 mins
Today on the Big Take, we bring you a new episode of Trumponomics, straight from the live stage at Bloomberg’s Hong Kong Invest conference.
Stephanie Flanders leads a panel from the Hong Kong Invest conference to unpack the latest round of high-stakes trade talks between the US and China, exploring why Beijing may still have the upper hand and how far any decoupling of the two economies will go.
She's joined by Robin Xing, Chief China Economist at Morgan Stanley, Lotus Asset Management Chief Investment Officer Hao Hong, and Bloomberg reporter Rebecca Choong Wilkins.
Further reading: Why China Can Afford to Wait for a Deal, and the US Can’t
See omnystudio.com/listener for privacy information.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:07):
Hey it's David. Happy weekend.
Speaker 3 (00:09):
Today we're bringing you a new episode from trump Andomics,
Bloomberg podcast focused on the Trump administration's economic policies and plans.
It's hosted by Bloomberg's Head of Government and Economics, Stephanie Flanders.
This week, Trump Andomics recorded in front of a live
audience at Bloomberg invest in Hong Kong, and the discussion
centered on the latest round of talks in London between
the US and China. That agreement, which was short on detail,
(00:33):
diffuse tensions, but left everybody wondering what the heck is
going to happen next.
Speaker 1 (00:39):
China is not easy.
Speaker 4 (00:40):
We want to open up China.
Speaker 2 (00:42):
It'll be a great thing for China, great thing for
the rest of the world.
Speaker 4 (00:54):
I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
and welcome to Trumpanomics, the podcast that looks the economic
world of Donald Trump, how he's already shaped the global
economy and what on earth is going to happen next.
This week, we're recording Trumpnomics in front of an audience
from Bloomberg invest Hong Kong, and we're looking at what
(01:15):
trumpanomics means for this part of Asia, notably mainland China
and Hong Kong. We've seen the latest round of trade
talks in London between the US and China conclude with
what our Bloomberg geoeconomics analyst Michael Deng has called a
tactical de escalation but not a strategic reset. So we're
(01:37):
none the wiser on where tariff rates will end up
or how deep the much discussed decoupling of the world's
two largest economies will go. But we have plenty to
discuss and I'm sure plenty of theories as to what
direction we're going about all of that, and maybe also
the future of the dollar. Have some great guests to
(02:01):
help me talk this through. My colleague Rebecca John Wilkins,
Asia Economics and Government reporter for US at Bloomberg, Howhong
Managing Partner and chief investment officer at Lotus Asset Management,
and Robin Ching, the chief China economist at Morgan Stanley. Rebecca,
(02:24):
I'll take advantage of you as the reporter in the room.
Take us up to speed on how you're reading that
statement we had out of London, and I think we're
still expecting a statement from the Chinese about those talks
as well.
Speaker 5 (02:36):
We yes, I mean not a lot of detail in
fact from both sides, largely all of the detail coming
from the US side here, but more than twenty hours
of negotiations over two days, both the sort of heavy
hitters from the US and the China side. Essentially, we
are back too. I think that point in the Geneva
truce where both sides were sitting down saying, yep, maybe
(02:56):
something can happen, maybe we can do a deal.
Speaker 6 (02:58):
We're going back to that pause.
Speaker 5 (03:00):
But it's important to understand why there was that sort
of breakdown in the Geneva truce in the first place,
and it really fundamentally is.
Speaker 6 (03:06):
Over this issue of rare earth.
Speaker 5 (03:09):
China introduced restrictions on seven different rare earths. These were
global restrictions, essentially requiring licenses from companies all over the world,
now not just US. But in addition, there was effectively
a shadow ban on US requiring these licenses. Now, as
part of the Geneva truce, a really critical part of
that truce was this agreement that the Chinese side would
(03:31):
effectively lift that shadow bank and allow licenses. Now, the
whole disagreement, and the reason why we saw this breakdown
between the US and China side is precisely what that meant.
What does it actually mean for Beijing to expedite these licenses?
How quickly is that going to come through? On the
China side, of course, we are talking about an entirely
(03:53):
new system of export controls over seven different substances. It's
a global program, steply complex, forty five days, a review process, etc.
And it does seem on the US side that there
was an expectation that once that Geneva agreement was made
that there would be a much more rapid introduction implementation.
So that's really at the crux, it seems of where
(04:15):
there was a sort of breakdown in relationships between the
US and China. So now it seems it seems I
said it very tensatively because we don't have a lot
of details, but it seems like there is a quote
unquote framework to allow this EXPEDITEI process or allow these
rare US to continue being exported into the US. We
(04:36):
do not have any details on what that might mean,
and both sides still do need to go back to
their respective leaders and effectively run this by their bosses.
Speaker 4 (04:45):
But on the other side, there had been some excitement
in the last couple of days when the Commerce Secretary,
Howard Litnik actually mentions export controls and was also apparently
thinking about some of the US export controls on China,
which have been a very sore point for the Chinese.
Do we have any clarity on which of those controls
were discussed, because there's some are much more important than others.
Speaker 5 (05:07):
Absolutely, so sort of yes and no. Here we think
that some of the immediate retaliatory export controls that the
US rolled out when they believe that the Chinese side
were not living up to their expectations and the agreement
on rare US will be lifted. So that includes restrictions
on things like software technology for developing semiconductors, nuclear materials, chemicals,
(05:29):
some jet engine parts.
Speaker 6 (05:30):
So these are the.
Speaker 5 (05:31):
Latest package of retaliatory measures that we've seen coming out
of the US since that breakdown in the Geneva truce.
Speaker 6 (05:38):
It's unclear if this.
Speaker 5 (05:39):
Will involve some of these more fundamental issues over export
controls over semiconductors. That of course is the big sticking point.
These restrictions that were rolled out under Biden and continue
to be expanded.
Speaker 4 (05:52):
Well, Robin seeing you know, of course Rebecca has to
stick to absolutely what she knows, but you get to
just speculate wildly on the basis of very serious economic analysis.
How are you reading where we've got to? And I
guess what will you be looking for in terms of
the economic impact of these ongoing talks.
Speaker 1 (06:10):
Thank you, it's definitely I like the word you used, speculating.
Given all these flip flop about trade talks so far,
the bid ask gap between US and China is still
very wide. If you look at the readouts from the
US side, they are leaders focusing on trade, deer on
upcoming logistics for real Earth, as Rebecca you elaborated, but
(06:35):
the Chinese version, Beijing's readout covered a much bigger picture.
They want to reset the grand relationship between US and China,
covering tech curves, students with geopolitical issues. So apparently Beijing
wanted a grand buggaining deal. So I think there is
a huge gap between the bid ask and that means
(06:57):
the ongoing talks won't be easy. Maybe they can extend
this is a trade tariff did on, but what Beijing
wanted is beyond tariffs. And Rebecca, you mentioned the real Earth.
Now China is using it more like a strategic card.
So what do you said. It's like Beijings thinking if
you cut our chips, I will cut your magnets. And
(07:20):
over the last seven years since the first trade war
in twenty eighteen, China has strengthened these dominance in key
supply chains like Real Earth. Today they control more than
eighty percent of Real Earth refining capacity, more than ninety
percent of the magnet production, which is widely used in
(07:40):
next generation of attack and supply chain including TV cards, humanoids, robotics,
even modern defense system So now China is using that
in exchange for potential relaxation of tech curves. That's also
part of Beijing's strategic play, sending a message to US allies.
(08:01):
It's making them think twice about aling too closely to
the tech curbs on China. So I do think all
these showed China wanted a grand buggaining deal covering not
just the tariff but attack and geopolitical issues. Given that's
not going to be easy, you may see continue the
uncertainty on trade talks, so our base cases. By end
(08:22):
of this year, the US terminal tariff rate on China
will probably stay similar to today's level thirty percent forty percent,
given all these difficulties and the divergence of Beijing and
the Washington redoubts. And that's going to cost the foreign
firms margins, cost the Chinese exporters the jobs. So it's
still downside the risk to the economy how long.
Speaker 4 (08:45):
I mean, it feels like the US side had not
fully grasped how reliant key parts of the US supply
chain was on these rares. So, and I'm kind of
reminded of the piction someone had of the ongoing debate,
which is the US has decided they absolutely want a
divorce from China in ten years time, but live together
(09:08):
in the interim for the entire ten years. That is
the challenge that you see in some of these talks.
Speaker 7 (09:14):
Yeah, well, I think it's similar to a couple of
fighting through a divorced process, right, so the two parties
don't see each other in the future, but then at
the same time they still have to live with the
consequence and how to divide up the assets. Rebecca and
Robin mentioned about the rare earth. It is because the
counter offer from the US part is probably not good
(09:35):
enough for China, right so I think as a result,
even though China has agreed to restart the approval process
for rare exports at the Geneva session, the Chinese can
always run slower than expected process to approve it. Right,
So normally it takes probably one to two weeks to
approve to get a permit for exports, and now it
(09:55):
takes two months. Right then, that way, on the surface,
on paper, China is not violating the agreement, but then
at the same time it's still not getting your queen
gredient for your GPUs. So I think China can do
a lot of these things to slow down the process.
And also at the same time, people have to recognize
the situation that the American consumers probably can't live for
(10:17):
much longer at the higher prospect of much substantial higher invasion.
And then at the same same time, because of the
process of this trade war and how this trail will started,
it actually somehow united the Chinese people together, right, So
if you're in mainland Chines, you can you can really
feel the atmosphere rooting for presidency and us also rooting
(10:38):
for China in this negotiation process.
Speaker 2 (10:40):
So I think the.
Speaker 7 (10:41):
Chinese people is very famous for it bitter, right, So
in the Chinese culture, it bitter means it can endure
substantial hardship for a.
Speaker 2 (10:49):
Very long time.
Speaker 7 (10:50):
So as a result, you can see this group of
people is ready to fight. But then at the same time,
the American consumers really want to get cheap goods. So
then that you can see the chinnel can afford to wait.
And so I think it's setting a stage for the negotiation.
So I think one shouldn't be too surprised that as
China Jet one than the Americans would have to give
(11:11):
more concession during the process, and then towards the end
we probably get a result that is more favorable than
expected for the Chinese people.
Speaker 4 (11:21):
And just to follow up on that, the World Banks
obviously brought out some new forecasts this week, and it's
cut the growth forecast for seventy percent of the world's economies,
almost all of the world's biggest economies. It's halved this
year's forecast for the US. The only country that it
hasn't cut the forecast for this year next is China.
So I guess to come back to you how long
(11:42):
at this point, it's China winning the trade war. It's
China coming out of this certainly and much better than
the US.
Speaker 7 (11:48):
Yeah, well, I think it's much better than the trailer
phase one in twenty eighteen, right, So I think during
the current trade war, Chinese more prepared than before and
also Chinese ready to use the A thing metric retaliation
towards the US counterpart. So I think as a result,
on the surface, but the Chinese growth is steady, Chinese
exports is steady, and if you look at the Chinese
(12:09):
domestic economy, you're seeing two parts of the economy. One
part is export manufacturing driven that is doing really well,
so even though the exports to the US has been
down like one third, but then to the rest of
the world is really booming.
Speaker 2 (12:23):
And then at the same time, if you want to bury.
Speaker 7 (12:25):
On the Chinese economy, you can look at the consumer sector, right,
which is way below expectation and it's still not recovering.
And then if you look at housing sector, the housing
bubble bursting process is still dragging on. So depending on
which part of the Chinese economy you look at, and
then you can draw very different conclusions.
Speaker 4 (12:41):
We have debates in Bloomberg and with the economists as well,
because we'll have analysis of the growth trajectory being lower
for China and what that means in terms of people's
expectations after years of double digit growth. But alongside that
sort of pessimism around the Chinese economy, you know, we'll
also be reading the latest release of the breakthrough deep
(13:03):
Seek or the latest incredible charging technology for electric cars,
where China seems to be powering ahead much faster than
people expected. So how do you deal with that schizophrenia
day to day when people are asking you how's the
China economy?
Speaker 2 (13:17):
Well?
Speaker 5 (13:18):
I think to Howhong's point. To a certain extent, it
really depends where you look. And clearly there are areas
where we've had most notably high quality manufacturing, where enormous
amounts of investment have been pouring in, and you do
see the clear emergence of winners among Chinese firms. Think
about electric cars, think about deep seek AI. These are
(13:39):
investments that have been going in for the last decade
or so. We can think about the China twenty twenty
five plans, for example, by and large, aside from semiconductors,
China has met all of its aspirations in becoming either
a global leader or one of a global leader in
those key sectors. So in some ways China is meeting
its own tests. But on the other hand, to how
(14:02):
Hong's point, there is still this quite painful transformation that
is being ushered away from a debt driven property investment
led society, and that clearly does still provide drags on
the economy. I know, Morgan Stanley that you have your
own sort of social metric index of content in China.
Speaker 6 (14:22):
That's one way to put it. But another way is
when you kind of look, for.
Speaker 5 (14:25):
Example, a private data sets at protests in China. Now
they're relatively small scale, we're talking about in the hundreds,
but by and large we have seen those continue to climb,
particularly over the course of this year. They tend to
be very economic focus. These are economic issues. They're rarely political.
In fact, actually they're off and around housing issues. They're
often around unpaid wages. So to that point of knowing
(14:48):
sort of where to look is you can see these
pockets of real tension, particularly at the local government level
where finances are really strained. And then over when we
think about the consumer mood, of course, most consumer indexes
will still show that we are pretty far from where
we were pre pandemic as well, So overall that mood
(15:09):
is different. But to how Hung's point, I will say
there has been a remarkable transformation in how this is
all viewed as a result of the trade war. When
we think about last year, that all of these stories
about deflation, Robin extensively about concerns about the property market
when we're going to see a bottom and really the
cost for ordinary people of Presidency Edimping's push to transform
(15:31):
the economy.
Speaker 6 (15:32):
Was this really going to pay off the end of
the boom years. So with these sort of.
Speaker 5 (15:35):
Quite existential questions we are asking, now we are seeing
this extraordinary support from many parts of the economy for
presidency backing China standing up and this sort of resurgence
of sort of a nationalism and a nationalist feeling and
patriotic feeling as well. So you know, in some ways
that's nothing to do with the Chinese economy. We're talking
about the sort of enemy that the US has created
(15:58):
for itself that has changed the nowational mood in China.
Speaker 4 (16:01):
I think, well, Robin, I think we've established that Rebecca
is a very careful reader of.
Speaker 2 (16:05):
Your of your work.
Speaker 4 (16:07):
But I'm interested in how you see that, and I
think also we see maybe a change in the mood
supporting the leadership. But have we also seen a change
of direction from the leadership in terms of its commitment
to rebalancing the economy or is that just wishful thinking
on the part of the Americans, you know, a commitment
(16:27):
from the top to a more consumption led economy, which
is of course what economists have been lecturing the Chinese
about for many years.
Speaker 1 (16:35):
Well, it's definitely I think Rebecca you are bought on
about the change.
Speaker 4 (16:39):
Of course, because she's been reading your.
Speaker 1 (16:43):
I have been right and the decline of readership readership
of mind defletion.
Speaker 2 (16:50):
Report last year.
Speaker 1 (16:52):
What's are dominated by deflation, housing adjustment or a capacity
Then suddenly, at Rebecca you mentioned and there is a
changing narrative and how you also briefly touched it. At
least right now, despite China is nothing a sustainable recovery path.
Yet at least there is a biification of the narrative,
(17:14):
a tale of two economies. You have a very dynamic
tach economy. Every other week you heard the new technology progress,
either AI model or next generation of batteries or self
driving cars or even recently China's healthcare bot tech had
its own deepsick moment, able to make fast follow drugs
(17:35):
at competitive quality at a fraction of the US cost.
So all of these are showing a very dynamic tach
economy that helped Hong Kong. I think in your Hong
Kong conference today is becoming bigger partially because Hong Kong
is back with the ecosystem. Private acity investor in tech
using Hong Kong as acts the channel creating new money.
(17:56):
That animal spirity is largely back. But once you take
off or augmented reality glass, you look at conventional consumers
that are mentioned or housing construction, they are pretty much
stuck with deflation. And as the economists, we have to
explain why these sifications happened. I think fundamentally China has
(18:18):
not shifted from a supply centric business model policy approach
towards consumption centric.
Speaker 2 (18:26):
They did some.
Speaker 1 (18:27):
Baby steps social welfare or consumer trading, but these are
too little. Fundamentally, the local government incentives, the GDPKPI, the
government revenue largely relying on AT which is linked to production.
All of these are showing past dependency. They are still
pretty much in supply centric mentality. We proposed they should
(18:49):
upgrade their Made in China twenty twenty five to something
called and Open China Market tunicity, focusing on boosting domestic
demand and consumption in a sustainable way, providing deeper social
safety net that social welfare household centric reform to unlock
China's consumption potential. However, according to Bloomberg, they are probably
(19:13):
still debating on doubling down on tech and the supply
side in the next five year plan. So I do
think that's the reason of the bification of the economy
a tale of two economies. Unfortunately, for a bigger part
of the macroeconomy, they're still stuck with deflation.
Speaker 2 (19:30):
So volume growth is fine.
Speaker 1 (19:32):
Stephanie mentioned many people maintained or upgraded their China forecast
to four and a half percent or higher for this year,
but that's for real GDP, that's for volume. Once you
look at value or nominal side, we think China's normal
GDP growth were stay at the subdued level of three
and a half percent throughout maybe the end of next year,
(19:55):
given the deflation problem and the recently example of they
did some interesting introduction of self driving cars, but meanwhile
you see all these cut through the pricing war during
IV among all these TV cut firms. So that's a
perfect example of the supply versus a demand. That imbalance
is quite persistent in China.
Speaker 4 (20:14):
And just to unpack a little bit for people listening
who are not always listening to the sort of economist
debates about this, when you talk about the rebalancing and
when you talk about still focus on supply and some
of the incentives. I mean, it's an economy that is
geared around an extraordinarily high level of investment over many,
many years, and much lower consumption than you see in
(20:35):
most economies, certainly advanced economies, but also economies of a
similar income. And what you were saying, Robin, is that
the local government officials are incentivized still around just pushing
out output rather than getting income to households or providing
welfare services. How and then when we discussed this before
the session, you made the point that this was about
(20:56):
not just rebalancing the Chinese economy but also the US
econom I'm not sure that's the way the US sees that,
but just explain that briefly to us.
Speaker 7 (21:04):
Yeah, Well, I think to rebalance both sides has to
work together. I think the Chinese consume too little invests
too much, and then the US is the reverse. If
you want to rebalance this structure, the US has to
produce more, consume less, and then vice versa for the Chinese.
I think for China is a monumental task in the
sense that if you look at the domestic economy just now,
(21:25):
we've mentioned about the housing bubble bursting process. Now in
this process, indebted department of the Chinese economy is really
the household. The household is borrowed up to their eyeballs.
The non financial that the GDP ratio is about three
hundred percent in China. So when you have this department
that is boring heavily to buy up properties, and then
(21:46):
now in a property priced inflationary process, it's very difficult
for this department to deleverage because this department cannot print money.
But then, on the other hand, the US is a
different situation where you have the public department that is
boring up all of that, and then the US households
deservice racial is it's still at odd time low. In
this kind of economic structure, then you'll see an inflationary process.
(22:10):
The US government can't keep its budget deficit down, but
then at the same time you're facing higher and high
inflationary pressure.
Speaker 2 (22:16):
And then in Chinese the opposite.
Speaker 7 (22:18):
If you really want to rebalance, it's a global rebalance process.
Speaker 2 (22:21):
It's not just about China.
Speaker 7 (22:23):
If you look at China, so the way we manage
our economy, right, so we try to rebalance it for
like decades I remember still since two thousand and seven, right,
so when the ex government was in charge, there was
this saying about the Chinese managing Chinese economy. It's about
it's riding a bicycle, right, so if you're too fast
(22:43):
or too slow, it will tap over. I think you know,
if you look back now, almost twenty years later, we
look at the Chinese economy, it's actually more investment driven
than before and less consumption, so that it's telling you
that whatever happened in the past two decades hasn't been successful.
We have to change the way of thinking for China.
(23:03):
Just rebalancing on its own it hasn't been successful. I
think it's a global rebalancing process.
Speaker 4 (23:09):
I want to just say something a bit about not
just the rebalancing of the individual US and China economies,
but I would say globally, there's a sort of rebalancing
in markets that's happening. We're seeing the dollar four relative
to every currency, but certainly many around here, and we
are seeing a reallocation of investment. People are still heavily
(23:32):
invested in the US, it's hard to avoid, but certainly
at the margin we're seeing money flow, particularly perhaps into
this region. Rebecca, just tell us a little bit about
how you see the impact for Hong Kong as a
financial system, for the relative role of the dollar here
and investment sentiment in this.
Speaker 6 (23:52):
Part of the world, not just in Hong Kong, but
in Asia.
Speaker 5 (23:54):
This broader question of the role of the US dollar
going forward. There'll be people in this who over the
last year, whether it was trading the Taiwan currency, whether
it was trading the Japanese carry trade, who have been
on the forefront of feeling this sort of this shift
in the tectonic place. Essentially, there was a big debate
over whether or not actually we were seeing some kind
(24:17):
of reversal of the Asian financial crisis, essentially declining confidence
in the dollar, strengthening local currencies, and whether or not
that would essentially mean a massive return of capital back
home now that sort of phenomena hasn't really started already
yet in massive numbers, but certainly we are already starting
(24:37):
to see.
Speaker 6 (24:37):
That playing out.
Speaker 5 (24:38):
And I think for many Asian countries broadly speaking, economically,
there's this question of how that impacts their export driven
economies that have, of course so relied on that currency disparity.
But also from a sort of financial markets point of view,
there will be this question of how deep and liquid
home markets are and their capacity to absorb that home
(25:01):
currency and whether if they are sort of I suppose mature.
Speaker 6 (25:05):
Enough to start to start adapting that back. But by
and large.
Speaker 5 (25:08):
There is this potential good news story that we will
see the sort of reinvestment back into home currencies. I
took a trip to the US not so long ago.
I spoke to a lot of US front managers, particularly
outside of New.
Speaker 6 (25:22):
York and places in New England and so on.
Speaker 5 (25:24):
And what struck me that was sort of really remarkable
is anecdotally, although a lot of them are persisting with
their various macro and global trades and bullish on the US,
they still believe in the US exceptionalism story. By and large,
almost every single one of them told me that when
it comes to their personal investments, they were all worried
about overexposure to the dollar. They're all worried about thinking
(25:45):
about where else I diversify, What other currencies?
Speaker 6 (25:48):
Do we go to gold?
Speaker 5 (25:49):
Even though it's too late, except I just heard this
conversation come up again and again and again. It's so
interesting taking that into the Asian context and how that
resonates with traders and investors here as well.
Speaker 4 (26:01):
Robert, you mentioned the role of Hong Kong, but do
you also see just a long term shift, this reversal
of the Asia financial crisis, if you like, for this region.
Speaker 1 (26:11):
Hong Kong benefited from three wives of inflows. You mentioned
about the capital flows first wave. Since September last year,
policy makers in Beijing believe stock market is a very
important confidence vote, confidence progracy, so in terms of national
team or reserve management or China's sovereign worth education. Now
(26:34):
they value Hong Kong more than ever before that was
the stage one more driven by government. Then after this
earlier this year deepsick moment, people realized that okay, China
still has these innovation capabilities, and due to Lai issues,
a lot of big tech laims are listed in Hong Kong,
not in on shore China. So Hong Kong benefited from
(26:55):
that narrative change. Okay, China innovation and animal spirit in
pact is back recently the April second deliberation day, and
as you've definitely and rebeccommentioned, people are debating on the
falling of US exceptionalism, weakening US dollar, and the third
wave of influence is not from global money yet, is
(27:19):
from Chinese offshore money. High networks individuals or exporters who
parked too much of their money in US asss in
the last five years. They were too exposed to US
dollar assets. Now they are participating in things like Hong
Kong asses or Hong Kong ipo so called the high quality.
(27:39):
They may be assets listed in Hong Kong. So Hong
Kong benefited from that. But the final wave, the most
important one, has not come yet global money allocating to
China and Hong Kong. Well, China is participating in this
debate on week dollar. Maybe China can benefit from that,
but I don't think they are fully red need to
(28:00):
see this moment. They need to improve polery transparency, they
need to refleate and the rebalance, try to get rid
of the definition problem. If Beijing can deliver this, I
think they will benefit much more and the fully feeling
this opportunity of so called diversification away from US dollar.
But sofa Hong Kong money is mostly Chinese money, either
(28:23):
from Beijing or from offshore Chinese. That's the way they
benefited the sofa.
Speaker 4 (28:29):
How long we'll have the last word? Do you do
you agree with Robin that we're just at the first
stage of a process. That's quite a few steps to
go if we're going to have this shift in the
center of financial gravity in this direction.
Speaker 7 (28:40):
Yeah, well, I think more likely than not, you know,
the US dollar will continue its depreciation process.
Speaker 2 (28:45):
Over the next couple of years.
Speaker 7 (28:47):
I think a very strong US dollars has been a
symptom of the global imbalance. And also the Chinese currency
is way too weak, and I think one of the
reasons why the Chinese currency was so weak was because
we have to maintain the edge in our export sector.
And then at the same time, I think the Chinese
currency rate is more driven by capital flow rather than
(29:11):
trade flows. So I think as a result, in the
past couple of years, usually seeing the capital keep flowing
out of China and going into the US capital market.
And also for the US dollars that the Chinese export
have been receiving, they have been keeping it overseas to
be reinvested in the US market.
Speaker 2 (29:29):
So I think as a.
Speaker 7 (29:29):
Result, you can see, you know, in the past couple
of years, the Chinese currentcy has been weak. You know,
it's because of the direction of the capital flow has
not been favorable to the Chinese currency. But now the
table has turned. I think the narrative of the Trump
administration is making it itself hostile not only to the
Chinese economy, but also to the global economy, actually hitting
(29:51):
hard on the airlines as well. All right, So I
think in this process, and also after the Russian and
the Ukraine War, I think people start to realize that,
you know, the US dollar holding may not be as
safe as they once were, and now they have to
thing for themselves. So I think as a result, you know,
we're seeing money being reallocating out of the US market.
Speaker 2 (30:13):
Otherwise how could you explain.
Speaker 7 (30:14):
Right, So, after a very significant risk of event on
the Liberation Day, the US dollar continue to depreciate, and
I think the the process could accelerate from here.
Speaker 4 (30:26):
Well, this is making me feel a bit old talking
about the full circle from the age of financial crisis,
because my first ever trip to Hong Kong was in
the autumn of nineteen ninety seven with the US Treasury.
I just joined the US Treasury. It was the World
Bank meetings, and we were just getting to grips with
at that point the crisis in Thailand. But of course
(30:46):
it became the financial crisis. I'm not sure we're full
circle stance then, but we've certainly come a very long way,
and in this region probably.
Speaker 2 (30:54):
Most of all.
Speaker 4 (31:02):
Thank you very much for listening to Trumponomics from Bloomberg.
It was hosted by me Stephanie Flanders. I was joined
by Bloomberg's Rebecca Chong Wilkins, Morgan Stanley's Robin Singh and
lotuses how Long, with special thanks to the team at
Bloomberg Hong Kong invest Thanks very much,
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:07):
Hey it's David. Happy weekend.
Speaker 3 (00:09):
Today we're bringing you a new episode from trump Andomics,
Bloomberg podcast focused on the Trump administration's economic policies and plans.
It's hosted by Bloomberg's Head of Government and Economics, Stephanie Flanders.
This week, Trump Andomics recorded in front of a live
audience at Bloomberg invest in Hong Kong, and the discussion
centered on the latest round of talks in London between
the US and China. That agreement, which was short on detail,
(00:33):
diffuse tensions, but left everybody wondering what the heck is
going to happen next.
Speaker 1 (00:39):
China is not easy.
Speaker 4 (00:40):
We want to open up China.
Speaker 2 (00:42):
It'll be a great thing for China, great thing for
the rest of the world.
Speaker 4 (00:54):
I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
and welcome to Trumpanomics, the podcast that looks the economic
world of Donald Trump, how he's already shaped the global
economy and what on earth is going to happen next.
This week, we're recording Trumpnomics in front of an audience
from Bloomberg invest Hong Kong, and we're looking at what
(01:15):
trumpanomics means for this part of Asia, notably mainland China
and Hong Kong. We've seen the latest round of trade
talks in London between the US and China conclude with
what our Bloomberg geoeconomics analyst Michael Deng has called a
tactical de escalation but not a strategic reset. So we're
(01:37):
none the wiser on where tariff rates will end up
or how deep the much discussed decoupling of the world's
two largest economies will go. But we have plenty to
discuss and I'm sure plenty of theories as to what
direction we're going about all of that, and maybe also
the future of the dollar. Have some great guests to
(02:01):
help me talk this through. My colleague Rebecca John Wilkins,
Asia Economics and Government reporter for US at Bloomberg, Howhong
Managing Partner and chief investment officer at Lotus Asset Management,
and Robin Ching, the chief China economist at Morgan Stanley. Rebecca,
(02:24):
I'll take advantage of you as the reporter in the room.
Take us up to speed on how you're reading that
statement we had out of London, and I think we're
still expecting a statement from the Chinese about those talks
as well.
Speaker 5 (02:36):
We yes, I mean not a lot of detail in
fact from both sides, largely all of the detail coming
from the US side here, but more than twenty hours
of negotiations over two days, both the sort of heavy
hitters from the US and the China side. Essentially, we
are back too. I think that point in the Geneva
truce where both sides were sitting down saying, yep, maybe
(02:56):
something can happen, maybe we can do a deal.
Speaker 6 (02:58):
We're going back to that pause.
Speaker 5 (03:00):
But it's important to understand why there was that sort
of breakdown in the Geneva truce in the first place,
and it really fundamentally is.
Speaker 6 (03:06):
Over this issue of rare earth.
Speaker 5 (03:09):
China introduced restrictions on seven different rare earths. These were
global restrictions, essentially requiring licenses from companies all over the world,
now not just US. But in addition, there was effectively
a shadow ban on US requiring these licenses. Now, as
part of the Geneva truce, a really critical part of
that truce was this agreement that the Chinese side would
(03:31):
effectively lift that shadow bank and allow licenses. Now, the
whole disagreement, and the reason why we saw this breakdown
between the US and China side is precisely what that meant.
What does it actually mean for Beijing to expedite these licenses?
How quickly is that going to come through? On the
China side, of course, we are talking about an entirely
(03:53):
new system of export controls over seven different substances. It's
a global program, steply complex, forty five days, a review process, etc.
And it does seem on the US side that there
was an expectation that once that Geneva agreement was made
that there would be a much more rapid introduction implementation.
So that's really at the crux, it seems of where
(04:15):
there was a sort of breakdown in relationships between the
US and China. So now it seems it seems I
said it very tensatively because we don't have a lot
of details, but it seems like there is a quote
unquote framework to allow this EXPEDITEI process or allow these
rare US to continue being exported into the US. We
(04:36):
do not have any details on what that might mean,
and both sides still do need to go back to
their respective leaders and effectively run this by their bosses.
Speaker 4 (04:45):
But on the other side, there had been some excitement
in the last couple of days when the Commerce Secretary,
Howard Litnik actually mentions export controls and was also apparently
thinking about some of the US export controls on China,
which have been a very sore point for the Chinese.
Do we have any clarity on which of those controls
were discussed, because there's some are much more important than others.
Speaker 5 (05:07):
Absolutely, so sort of yes and no. Here we think
that some of the immediate retaliatory export controls that the
US rolled out when they believe that the Chinese side
were not living up to their expectations and the agreement
on rare US will be lifted. So that includes restrictions
on things like software technology for developing semiconductors, nuclear materials, chemicals,
(05:29):
some jet engine parts.
Speaker 6 (05:30):
So these are the.
Speaker 5 (05:31):
Latest package of retaliatory measures that we've seen coming out
of the US since that breakdown in the Geneva truce.
Speaker 6 (05:38):
It's unclear if this.
Speaker 5 (05:39):
Will involve some of these more fundamental issues over export
controls over semiconductors. That of course is the big sticking point.
These restrictions that were rolled out under Biden and continue
to be expanded.
Speaker 4 (05:52):
Well, Robin seeing you know, of course Rebecca has to
stick to absolutely what she knows, but you get to
just speculate wildly on the basis of very serious economic analysis.
How are you reading where we've got to? And I
guess what will you be looking for in terms of
the economic impact of these ongoing talks.
Speaker 1 (06:10):
Thank you, it's definitely I like the word you used, speculating.
Given all these flip flop about trade talks so far,
the bid ask gap between US and China is still
very wide. If you look at the readouts from the
US side, they are leaders focusing on trade, deer on
upcoming logistics for real Earth, as Rebecca you elaborated, but
(06:35):
the Chinese version, Beijing's readout covered a much bigger picture.
They want to reset the grand relationship between US and China,
covering tech curves, students with geopolitical issues. So apparently Beijing
wanted a grand buggaining deal. So I think there is
a huge gap between the bid ask and that means
(06:57):
the ongoing talks won't be easy. Maybe they can extend
this is a trade tariff did on, but what Beijing
wanted is beyond tariffs. And Rebecca, you mentioned the real Earth.
Now China is using it more like a strategic card.
So what do you said. It's like Beijings thinking if
you cut our chips, I will cut your magnets. And
(07:20):
over the last seven years since the first trade war
in twenty eighteen, China has strengthened these dominance in key
supply chains like Real Earth. Today they control more than
eighty percent of Real Earth refining capacity, more than ninety
percent of the magnet production, which is widely used in
(07:40):
next generation of attack and supply chain including TV cards, humanoids, robotics,
even modern defense system So now China is using that
in exchange for potential relaxation of tech curves. That's also
part of Beijing's strategic play, sending a message to US allies.
(08:01):
It's making them think twice about aling too closely to
the tech curbs on China. So I do think all
these showed China wanted a grand buggaining deal covering not
just the tariff but attack and geopolitical issues. Given that's
not going to be easy, you may see continue the
uncertainty on trade talks, so our base cases. By end
(08:22):
of this year, the US terminal tariff rate on China
will probably stay similar to today's level thirty percent forty percent,
given all these difficulties and the divergence of Beijing and
the Washington redoubts. And that's going to cost the foreign
firms margins, cost the Chinese exporters the jobs. So it's
still downside the risk to the economy how long.
Speaker 4 (08:45):
I mean, it feels like the US side had not
fully grasped how reliant key parts of the US supply
chain was on these rares. So, and I'm kind of
reminded of the piction someone had of the ongoing debate,
which is the US has decided they absolutely want a
divorce from China in ten years time, but live together
(09:08):
in the interim for the entire ten years. That is
the challenge that you see in some of these talks.
Speaker 7 (09:14):
Yeah, well, I think it's similar to a couple of
fighting through a divorced process, right, so the two parties
don't see each other in the future, but then at
the same time they still have to live with the
consequence and how to divide up the assets. Rebecca and
Robin mentioned about the rare earth. It is because the
counter offer from the US part is probably not good
(09:35):
enough for China, right so I think as a result,
even though China has agreed to restart the approval process
for rare exports at the Geneva session, the Chinese can
always run slower than expected process to approve it. Right,
So normally it takes probably one to two weeks to
approve to get a permit for exports, and now it
(09:55):
takes two months. Right then, that way, on the surface,
on paper, China is not violating the agreement, but then
at the same time it's still not getting your queen
gredient for your GPUs. So I think China can do
a lot of these things to slow down the process.
And also at the same time, people have to recognize
the situation that the American consumers probably can't live for
(10:17):
much longer at the higher prospect of much substantial higher invasion.
And then at the same same time, because of the
process of this trade war and how this trail will started,
it actually somehow united the Chinese people together, right, So
if you're in mainland Chines, you can you can really
feel the atmosphere rooting for presidency and us also rooting
(10:38):
for China in this negotiation process.
Speaker 2 (10:40):
So I think the.
Speaker 7 (10:41):
Chinese people is very famous for it bitter, right, So
in the Chinese culture, it bitter means it can endure
substantial hardship for a.
Speaker 2 (10:49):
Very long time.
Speaker 7 (10:50):
So as a result, you can see this group of
people is ready to fight. But then at the same time,
the American consumers really want to get cheap goods. So
then that you can see the chinnel can afford to wait.
And so I think it's setting a stage for the negotiation.
So I think one shouldn't be too surprised that as
China Jet one than the Americans would have to give
(11:11):
more concession during the process, and then towards the end
we probably get a result that is more favorable than
expected for the Chinese people.
Speaker 4 (11:21):
And just to follow up on that, the World Banks
obviously brought out some new forecasts this week, and it's
cut the growth forecast for seventy percent of the world's economies,
almost all of the world's biggest economies. It's halved this
year's forecast for the US. The only country that it
hasn't cut the forecast for this year next is China.
So I guess to come back to you how long
(11:42):
at this point, it's China winning the trade war. It's
China coming out of this certainly and much better than
the US.
Speaker 7 (11:48):
Yeah, well, I think it's much better than the trailer
phase one in twenty eighteen, right, So I think during
the current trade war, Chinese more prepared than before and
also Chinese ready to use the A thing metric retaliation
towards the US counterpart. So I think as a result,
on the surface, but the Chinese growth is steady, Chinese
exports is steady, and if you look at the Chinese
(12:09):
domestic economy, you're seeing two parts of the economy. One
part is export manufacturing driven that is doing really well,
so even though the exports to the US has been
down like one third, but then to the rest of
the world is really booming.
Speaker 2 (12:23):
And then at the same time, if you want to bury.
Speaker 7 (12:25):
On the Chinese economy, you can look at the consumer sector, right,
which is way below expectation and it's still not recovering.
And then if you look at housing sector, the housing
bubble bursting process is still dragging on. So depending on
which part of the Chinese economy you look at, and
then you can draw very different conclusions.
Speaker 4 (12:41):
We have debates in Bloomberg and with the economists as well,
because we'll have analysis of the growth trajectory being lower
for China and what that means in terms of people's
expectations after years of double digit growth. But alongside that
sort of pessimism around the Chinese economy, you know, we'll
also be reading the latest release of the breakthrough deep
(13:03):
Seek or the latest incredible charging technology for electric cars,
where China seems to be powering ahead much faster than
people expected. So how do you deal with that schizophrenia
day to day when people are asking you how's the
China economy?
Speaker 2 (13:17):
Well?
Speaker 5 (13:18):
I think to Howhong's point. To a certain extent, it
really depends where you look. And clearly there are areas
where we've had most notably high quality manufacturing, where enormous
amounts of investment have been pouring in, and you do
see the clear emergence of winners among Chinese firms. Think
about electric cars, think about deep seek AI. These are
(13:39):
investments that have been going in for the last decade
or so. We can think about the China twenty twenty
five plans, for example, by and large, aside from semiconductors,
China has met all of its aspirations in becoming either
a global leader or one of a global leader in
those key sectors. So in some ways China is meeting
its own tests. But on the other hand, to how
(14:02):
Hong's point, there is still this quite painful transformation that
is being ushered away from a debt driven property investment
led society, and that clearly does still provide drags on
the economy. I know, Morgan Stanley that you have your
own sort of social metric index of content in China.
Speaker 6 (14:22):
That's one way to put it. But another way is
when you kind of look, for.
Speaker 5 (14:25):
Example, a private data sets at protests in China. Now
they're relatively small scale, we're talking about in the hundreds,
but by and large we have seen those continue to climb,
particularly over the course of this year. They tend to
be very economic focus. These are economic issues. They're rarely political.
In fact, actually they're off and around housing issues. They're
often around unpaid wages. So to that point of knowing
(14:48):
sort of where to look is you can see these
pockets of real tension, particularly at the local government level
where finances are really strained. And then over when we
think about the consumer mood, of course, most consumer indexes
will still show that we are pretty far from where
we were pre pandemic as well, So overall that mood
(15:09):
is different. But to how Hung's point, I will say
there has been a remarkable transformation in how this is
all viewed as a result of the trade war. When
we think about last year, that all of these stories
about deflation, Robin extensively about concerns about the property market
when we're going to see a bottom and really the
cost for ordinary people of Presidency Edimping's push to transform
(15:31):
the economy.
Speaker 6 (15:32):
Was this really going to pay off the end of
the boom years. So with these sort of.
Speaker 5 (15:35):
Quite existential questions we are asking, now we are seeing
this extraordinary support from many parts of the economy for
presidency backing China standing up and this sort of resurgence
of sort of a nationalism and a nationalist feeling and
patriotic feeling as well. So you know, in some ways
that's nothing to do with the Chinese economy. We're talking
about the sort of enemy that the US has created
(15:58):
for itself that has changed the nowational mood in China.
Speaker 4 (16:01):
I think, well, Robin, I think we've established that Rebecca
is a very careful reader of.
Speaker 2 (16:05):
Your of your work.
Speaker 4 (16:07):
But I'm interested in how you see that, and I
think also we see maybe a change in the mood
supporting the leadership. But have we also seen a change
of direction from the leadership in terms of its commitment
to rebalancing the economy or is that just wishful thinking
on the part of the Americans, you know, a commitment
(16:27):
from the top to a more consumption led economy, which
is of course what economists have been lecturing the Chinese
about for many years.
Speaker 1 (16:35):
Well, it's definitely I think Rebecca you are bought on
about the change.
Speaker 4 (16:39):
Of course, because she's been reading your.
Speaker 1 (16:43):
I have been right and the decline of readership readership
of mind defletion.
Speaker 2 (16:50):
Report last year.
Speaker 1 (16:52):
What's are dominated by deflation, housing adjustment or a capacity
Then suddenly, at Rebecca you mentioned and there is a
changing narrative and how you also briefly touched it. At
least right now, despite China is nothing a sustainable recovery path.
Yet at least there is a biification of the narrative,
(17:14):
a tale of two economies. You have a very dynamic
tach economy. Every other week you heard the new technology progress,
either AI model or next generation of batteries or self
driving cars or even recently China's healthcare bot tech had
its own deepsick moment, able to make fast follow drugs
(17:35):
at competitive quality at a fraction of the US cost.
So all of these are showing a very dynamic tach
economy that helped Hong Kong. I think in your Hong
Kong conference today is becoming bigger partially because Hong Kong
is back with the ecosystem. Private acity investor in tech
using Hong Kong as acts the channel creating new money.
(17:56):
That animal spirity is largely back. But once you take
off or augmented reality glass, you look at conventional consumers
that are mentioned or housing construction, they are pretty much
stuck with deflation. And as the economists, we have to
explain why these sifications happened. I think fundamentally China has
(18:18):
not shifted from a supply centric business model policy approach
towards consumption centric.
Speaker 2 (18:26):
They did some.
Speaker 1 (18:27):
Baby steps social welfare or consumer trading, but these are
too little. Fundamentally, the local government incentives, the GDPKPI, the
government revenue largely relying on AT which is linked to production.
All of these are showing past dependency. They are still
pretty much in supply centric mentality. We proposed they should
(18:49):
upgrade their Made in China twenty twenty five to something
called and Open China Market tunicity, focusing on boosting domestic
demand and consumption in a sustainable way, providing deeper social
safety net that social welfare household centric reform to unlock
China's consumption potential. However, according to Bloomberg, they are probably
(19:13):
still debating on doubling down on tech and the supply
side in the next five year plan. So I do
think that's the reason of the bification of the economy
a tale of two economies. Unfortunately, for a bigger part
of the macroeconomy, they're still stuck with deflation.
Speaker 2 (19:30):
So volume growth is fine.
Speaker 1 (19:32):
Stephanie mentioned many people maintained or upgraded their China forecast
to four and a half percent or higher for this year,
but that's for real GDP, that's for volume. Once you
look at value or nominal side, we think China's normal
GDP growth were stay at the subdued level of three
and a half percent throughout maybe the end of next year,
(19:55):
given the deflation problem and the recently example of they
did some interesting introduction of self driving cars, but meanwhile
you see all these cut through the pricing war during
IV among all these TV cut firms. So that's a
perfect example of the supply versus a demand. That imbalance
is quite persistent in China.
Speaker 4 (20:14):
And just to unpack a little bit for people listening
who are not always listening to the sort of economist
debates about this, when you talk about the rebalancing and
when you talk about still focus on supply and some
of the incentives. I mean, it's an economy that is
geared around an extraordinarily high level of investment over many,
many years, and much lower consumption than you see in
(20:35):
most economies, certainly advanced economies, but also economies of a
similar income. And what you were saying, Robin, is that
the local government officials are incentivized still around just pushing
out output rather than getting income to households or providing
welfare services. How and then when we discussed this before
the session, you made the point that this was about
(20:56):
not just rebalancing the Chinese economy but also the US
econom I'm not sure that's the way the US sees that,
but just explain that briefly to us.
Speaker 7 (21:04):
Yeah, Well, I think to rebalance both sides has to
work together. I think the Chinese consume too little invests
too much, and then the US is the reverse. If
you want to rebalance this structure, the US has to
produce more, consume less, and then vice versa for the Chinese.
I think for China is a monumental task in the
sense that if you look at the domestic economy just now,
(21:25):
we've mentioned about the housing bubble bursting process. Now in
this process, indebted department of the Chinese economy is really
the household. The household is borrowed up to their eyeballs.
The non financial that the GDP ratio is about three
hundred percent in China. So when you have this department
that is boring heavily to buy up properties, and then
(21:46):
now in a property priced inflationary process, it's very difficult
for this department to deleverage because this department cannot print money.
But then, on the other hand, the US is a
different situation where you have the public department that is
boring up all of that, and then the US households
deservice racial is it's still at odd time low. In
this kind of economic structure, then you'll see an inflationary process.
(22:10):
The US government can't keep its budget deficit down, but
then at the same time you're facing higher and high
inflationary pressure.
Speaker 2 (22:16):
And then in Chinese the opposite.
Speaker 7 (22:18):
If you really want to rebalance, it's a global rebalance process.
Speaker 2 (22:21):
It's not just about China.
Speaker 7 (22:23):
If you look at China, so the way we manage
our economy, right, so we try to rebalance it for
like decades I remember still since two thousand and seven, right,
so when the ex government was in charge, there was
this saying about the Chinese managing Chinese economy. It's about
it's riding a bicycle, right, so if you're too fast
(22:43):
or too slow, it will tap over. I think you know,
if you look back now, almost twenty years later, we
look at the Chinese economy, it's actually more investment driven
than before and less consumption, so that it's telling you
that whatever happened in the past two decades hasn't been successful.
We have to change the way of thinking for China.
(23:03):
Just rebalancing on its own it hasn't been successful. I
think it's a global rebalancing process.
Speaker 4 (23:09):
I want to just say something a bit about not
just the rebalancing of the individual US and China economies,
but I would say globally, there's a sort of rebalancing
in markets that's happening. We're seeing the dollar four relative
to every currency, but certainly many around here, and we
are seeing a reallocation of investment. People are still heavily
(23:32):
invested in the US, it's hard to avoid, but certainly
at the margin we're seeing money flow, particularly perhaps into
this region. Rebecca, just tell us a little bit about
how you see the impact for Hong Kong as a
financial system, for the relative role of the dollar here
and investment sentiment in this.
Speaker 6 (23:52):
Part of the world, not just in Hong Kong, but
in Asia.
Speaker 5 (23:54):
This broader question of the role of the US dollar
going forward. There'll be people in this who over the
last year, whether it was trading the Taiwan currency, whether
it was trading the Japanese carry trade, who have been
on the forefront of feeling this sort of this shift
in the tectonic place. Essentially, there was a big debate
over whether or not actually we were seeing some kind
(24:17):
of reversal of the Asian financial crisis, essentially declining confidence
in the dollar, strengthening local currencies, and whether or not
that would essentially mean a massive return of capital back
home now that sort of phenomena hasn't really started already
yet in massive numbers, but certainly we are already starting
(24:37):
to see.
Speaker 6 (24:37):
That playing out.
Speaker 5 (24:38):
And I think for many Asian countries broadly speaking, economically,
there's this question of how that impacts their export driven
economies that have, of course so relied on that currency disparity.
But also from a sort of financial markets point of view,
there will be this question of how deep and liquid
home markets are and their capacity to absorb that home
(25:01):
currency and whether if they are sort of I suppose mature.
Speaker 6 (25:05):
Enough to start to start adapting that back. But by
and large.
Speaker 5 (25:08):
There is this potential good news story that we will
see the sort of reinvestment back into home currencies. I
took a trip to the US not so long ago.
I spoke to a lot of US front managers, particularly
outside of New.
Speaker 6 (25:22):
York and places in New England and so on.
Speaker 5 (25:24):
And what struck me that was sort of really remarkable
is anecdotally, although a lot of them are persisting with
their various macro and global trades and bullish on the US,
they still believe in the US exceptionalism story. By and large,
almost every single one of them told me that when
it comes to their personal investments, they were all worried
about overexposure to the dollar. They're all worried about thinking
(25:45):
about where else I diversify, What other currencies?
Speaker 6 (25:48):
Do we go to gold?
Speaker 5 (25:49):
Even though it's too late, except I just heard this
conversation come up again and again and again. It's so
interesting taking that into the Asian context and how that
resonates with traders and investors here as well.
Speaker 4 (26:01):
Robert, you mentioned the role of Hong Kong, but do
you also see just a long term shift, this reversal
of the Asia financial crisis, if you like, for this region.
Speaker 1 (26:11):
Hong Kong benefited from three wives of inflows. You mentioned
about the capital flows first wave. Since September last year,
policy makers in Beijing believe stock market is a very
important confidence vote, confidence progracy, so in terms of national
team or reserve management or China's sovereign worth education. Now
(26:34):
they value Hong Kong more than ever before that was
the stage one more driven by government. Then after this
earlier this year deepsick moment, people realized that okay, China
still has these innovation capabilities, and due to Lai issues,
a lot of big tech laims are listed in Hong Kong,
not in on shore China. So Hong Kong benefited from
(26:55):
that narrative change. Okay, China innovation and animal spirit in
pact is back recently the April second deliberation day, and
as you've definitely and rebeccommentioned, people are debating on the
falling of US exceptionalism, weakening US dollar, and the third
wave of influence is not from global money yet, is
(27:19):
from Chinese offshore money. High networks individuals or exporters who
parked too much of their money in US asss in
the last five years. They were too exposed to US
dollar assets. Now they are participating in things like Hong
Kong asses or Hong Kong ipo so called the high quality.
(27:39):
They may be assets listed in Hong Kong. So Hong
Kong benefited from that. But the final wave, the most
important one, has not come yet global money allocating to
China and Hong Kong. Well, China is participating in this
debate on week dollar. Maybe China can benefit from that,
but I don't think they are fully red need to
(28:00):
see this moment. They need to improve polery transparency, they
need to refleate and the rebalance, try to get rid
of the definition problem. If Beijing can deliver this, I
think they will benefit much more and the fully feeling
this opportunity of so called diversification away from US dollar.
But sofa Hong Kong money is mostly Chinese money, either
(28:23):
from Beijing or from offshore Chinese. That's the way they
benefited the sofa.
Speaker 4 (28:29):
How long we'll have the last word? Do you do
you agree with Robin that we're just at the first
stage of a process. That's quite a few steps to
go if we're going to have this shift in the
center of financial gravity in this direction.
Speaker 7 (28:40):
Yeah, well, I think more likely than not, you know,
the US dollar will continue its depreciation process.
Speaker 2 (28:45):
Over the next couple of years.
Speaker 7 (28:47):
I think a very strong US dollars has been a
symptom of the global imbalance. And also the Chinese currency
is way too weak, and I think one of the
reasons why the Chinese currency was so weak was because
we have to maintain the edge in our export sector.
And then at the same time, I think the Chinese
currency rate is more driven by capital flow rather than
(29:11):
trade flows. So I think as a result, in the
past couple of years, usually seeing the capital keep flowing
out of China and going into the US capital market.
And also for the US dollars that the Chinese export
have been receiving, they have been keeping it overseas to
be reinvested in the US market.
Speaker 2 (29:29):
So I think as a.
Speaker 7 (29:29):
Result, you can see, you know, in the past couple
of years, the Chinese currentcy has been weak. You know,
it's because of the direction of the capital flow has
not been favorable to the Chinese currency. But now the
table has turned. I think the narrative of the Trump
administration is making it itself hostile not only to the
Chinese economy, but also to the global economy, actually hitting
(29:51):
hard on the airlines as well. All right, So I
think in this process, and also after the Russian and
the Ukraine War, I think people start to realize that,
you know, the US dollar holding may not be as
safe as they once were, and now they have to
thing for themselves. So I think as a result, you know,
we're seeing money being reallocating out of the US market.
Speaker 2 (30:13):
Otherwise how could you explain.
Speaker 7 (30:14):
Right, So, after a very significant risk of event on
the Liberation Day, the US dollar continue to depreciate, and
I think the the process could accelerate from here.
Speaker 4 (30:26):
Well, this is making me feel a bit old talking
about the full circle from the age of financial crisis,
because my first ever trip to Hong Kong was in
the autumn of nineteen ninety seven with the US Treasury.
I just joined the US Treasury. It was the World
Bank meetings, and we were just getting to grips with
at that point the crisis in Thailand. But of course
(30:46):
it became the financial crisis. I'm not sure we're full
circle stance then, but we've certainly come a very long way,
and in this region probably.
Speaker 2 (30:54):
Most of all.
Speaker 4 (31:02):
Thank you very much for listening to Trumponomics from Bloomberg.
It was hosted by me Stephanie Flanders. I was joined
by Bloomberg's Rebecca Chong Wilkins, Morgan Stanley's Robin Singh and
lotuses how Long, with special thanks to the team at
Bloomberg Hong Kong invest Thanks very much,
Hosts And Creators
Sarah Holder
Saleha Mohsin
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