00:00We were just joking right before we came on air that you didn't change your forecast
00:05as much as some in the industry.
00:07Right.
00:08So you're currently at 4% on growth in China.
00:10Yes, we are at 4%.
00:12We started the year at 4% because at the time we expected 60% tariff later in the year.
00:19So when the tariff escalated to 145%, we downgraded to 3.4% and after de-escalation,
00:26we're back at 4%.
00:28We're comfortable with the current situation.
00:31But as you said, there's so much uncertainty.
00:34Right now, it's a good thing.
00:36We had de-escalation from both sides.
00:39We have a 90-day sort of suspension period for them to discuss.
00:44Nobody expects tariffs to go back as high as before.
00:48But how much would it settle?
00:51Nobody knows.
00:52We think that the 20% fentanyl tariff, fentanyl-related tariff, may be negotiated away.
00:58However, there could be additional tariffs on certain sector products like semiconductors,
01:04electronics, pharmaceuticals, and so on and so forth.
01:07So in the end, the tariff rate may still be more or less what China is facing now, but with different composition.
01:15And then it's also very important what tariffs the U.S. impose on other countries because relative tariffs matter.
01:22So if everybody is the same, China's competitiveness will not be changed.
01:27If China's tariff is much higher than others, there could be a siphoning effect of supply chain moving away.
01:35What are you seeing now in terms of front-loading?
01:38Are you seeing any front-loading of shipments, whether that's from China to the U.S. or from other places to the U.S.?
01:44Because that matters, really.
01:45Yes, yes.
01:46Indeed, we have not really seen export numbers from China, from Asia being hit very hard.
01:54And a big part of that is front-loading.
01:57So Chinese exporters obviously had incentive to ship as much as possible.
02:02But we also noticed Chinese exports to other, to ASEAN, for example.
02:07And ASEAN exports to the U.S. in April, both are very strong.
02:11So that's ASEAN and others using that corridor of suspension, shipping as fast as possible.
02:20And they are giving China as a big part of the supply chain.
02:23They are demanding inputs from China as well.
02:26So this whole supply chain has seen front-loading.
02:30We could still see this going on because we, again, have a suspension here.
02:34So we could still see this going on for some time.
02:37And so then, maybe only a few months later, we see a very notable drop in export, in orders, in shipment.
02:45For a lot of businesses, it's really a period of high uncertainty for people, you know, what to order, order how much.
02:52The exporters know the order from their buyers is to ship as fast as possible.
03:01Yeah, get them in.
03:02Get them in.
03:03Yeah.
03:04And that really tells us about the payback we'll see in the second half because we're pulling forward economic activity to the first half.
03:12So how are you looking at the second half?
03:14The second half, we do see a very notable slowdown.
03:17So we think that for our quarterly scenario, right, so the second quarter, we may still have 4.6% growth.
03:27But for the whole year, we have four.
03:29And the first quarter was 5.4, right?
03:32So you see growth sharply coming down.
03:34So that's because we see exports really dropping later.
03:38And also because of these uncertainties related to business, then corporate capex is going to drop.
03:45And also that's going to affect consumers' confidence and so on.
03:51And all this will also have a negative impact on the already ongoing housing sector that has been trying to find the bottom.
04:00And now I think that stabilization is put in doubt by the external shock as well.
04:06So how would you describe the housing sector recovery right now?
04:09Right. The housing sector had shown signs of improvement since end of September, October last year with the government putting in some stimulus measures.
04:20And so the first quarter was pretty decent.
04:22April, we already saw signs of weakness.
04:25May, so far, we only have the sales of the top 30 cities.
04:31That's less bad compared to April.
04:34So that's okay.
04:36But we need to see a couple more months of data to say whether housing has stabilized.
04:41Our current baseline is that housing probably will stabilize at the end of this year or beginning of next year.
04:48What visibility do you have then on consumption?
04:52On consumption, I think consumption because of the trading program that's been going on.
04:58So we have seen pretty decent sales in automobiles, smartphones, appliances that are benefiting from these subsidies.
05:06But overall retail sales and so on is still a bit subdued.
05:10So anything not related to the subsidies is relatively weak.
05:15So at the moment, I think we don't really see signs of consumption picking up as a whole if you strip the-
05:24The trade-in away.
05:25The trade-in.
05:26So therefore, I think for the government, next step is they probably need to prepare more money to supplement the trading program.
05:35At this pace, some of the planned money may be used up by the summer.
05:42So they could do more.
05:44We are expecting another couple of hundred billion, for example.
05:47So in our 4% GDP forecast, we are assuming half a percent to 1% of GDP of additional fiscal stimulus coming in.
05:56And that has been relatively slow, but we think it's really necessary.
06:01Okay, and it might come to your point.
06:03Where does it leave inflation then?
06:05And how accurate is inflation now a gauge of demand?
06:11Because to your point, we've had trade-ins, we have all these corporates.
06:14We're in the middle of earnings season and they're all talking about margins and the needing to lower prices.
06:20And I'm wondering how those two things now come together to form an economic picture.
06:24Right.
06:25So overall, I think the GDP deflator is still negative.
06:29So that measures the broad inflation or deflation.
06:34CPI hovers around negative, right?
06:38So it's still negative, but sometimes up down because of the base effect.
06:42But in general, thinking of China's economy, it has very strong supply.
06:48At the moment, you know, demand, external demand, export demand was very strong now, but hit by the tariffs and by a shock.
06:57So basically, that demand shock is going to add deflationary pressure to China.
07:03So we're going to see very weak prices in the next few quarters.
07:07Okay.
07:08Well, to your point, we might get fiscal at some point in the next few months.
07:10Yeah, fiscal, I think fiscal, stronger effort to try to destock the property and also some rein in of excess capacity, including in the steel sector and so on.
07:23That could potentially help adjust this supply-demand balance and stabilize prices in general.
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