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00:00Is the data starting to bear fruit?
00:03Anti-involution, what have you, industrial profits, and then you have this.
00:06But yeah, make sense of this for us.
00:08In fact, I would say the PMI today has been unsurprising in the sense that from the supply side,
00:14actually numbers have always been holding up reasonably good.
00:18So for example, if you look at IP, even in the previous three months,
00:21when fixed asset investment as well as retail sales were weakening, IP were completely fine.
00:26So if you relate IP to PMI, both of them are supply side indicators telling us that largely,
00:33especially the subcomponents of production, how the industrial sector, the manufacturing sector has been doing.
00:39But at the same time, I don't think that this is divorced from the fact that we are seeing investment is getting weaker
00:47and the consumption is probably relatively weak as well.
00:50So the gap between demand and supply still remains large.
00:54And yeah, especially the investment side of things in the last data dump was quite underwhelming, right?
01:00Especially when you're not even seeing the state-led sort of investment into the economy as well.
01:04You're still thinking that we're not going to see any major stimulus despite the weakness in domestic demand.
01:09Why not?
01:10Exactly.
01:10I think the key is because that in the first half, we have had a relatively solid first half at 5.3% GDP growth.
01:17And that really cut some slack for policymakers for the second half because the whole year growth target is about 5.0%.
01:24So even if that they see some deceleration in sequential terms and year-on-year terms in the second half,
01:29there is no rush, no urgency in terms of rolling out more policy stimulus.
01:34So in that regard, our view really stands out relative to consensus where people are saying that,
01:39oh, there's got to be some demand-sized stimulus.
01:42Otherwise, growth is going to collapse in the very near term.
01:45We don't think so.
01:46Actually, demand-side is not doing very well, not for the first month.
01:50This is already the fourth month we're talking about.
01:52But supply-side is holding up reasonably okay.
01:55From policymakers' perspective, full year is almost there,
01:59and then there is no point of actually doing much more at a time when industrial production is still 5%, 6%, PMI looking pretty good.
02:09And at the same time, employment, if you look at the sub-index, is also holding up pretty well.
02:14So in that scenario, we think that this is a muddling through without the help of policy stimulus.
02:21The next five-year plan is coming soon.
02:25What do you think we should be watching out for?
02:27What will be the centerpiece of that?
02:29I think the key is probably about the structural reform agenda,
02:34which is more diverted to rotate the growth driver away from investment towards consumption.
02:39So the government is probably going to pledge that they are going to help boost the consumption more by expanding the social welfare system.
02:49If that is the case, I think that potentially looks very bullish because that's where China is supposed to be heading to.
02:56And by the way, even probably Treasury Secretary Scott Besson would also agree that this is a good idea for China to grow more driven by consumption.
03:06And at the same time, social welfare expansion is always something that we think could potentially help consumers feel more confident when it comes to spending.
03:18They can potentially reduce their precautionary savings and then spend more out of their disposable income at services as well as goods.
03:26So when that happens and potentially, you know, there are street talks that maybe they will set up a goal, even a target to grow private consumption by 30 percent in five years.
03:36If that is the case, I think that, you know, the market investors would generally be bullish.
03:41We we've been talking about this whole dichotomy between the markets, liquidity driven and what's going on, the economy, the macro side of things.
03:52And everyone, we're just talking to Ding Chen about from CSOP about this.
03:55The amount of household savings is still there.
03:58They're ready to be deployed.
04:00And then we'll probably look into the equity market as a source of maybe deploying that capital.
04:05How are you looking at this right now?
04:06Do you think that we are actually going to see a lot of money taken out of accounts into this sort of wealth effect that people are expecting?
04:15Well, good question.
04:17I would say that at this point, we are also seeing this really widening gap between macro fundamentals on the demand side, especially versus the rallies in the stock market.
04:27And also even to a certain extent, the bond market, because, you know, we're not necessarily seeing inflation.
04:33In fact, if demand continues to weaken and supply remains relatively stable, the gap between the two is probably implying more persistent deflation or pressure.
04:43So, you know, you can say that maybe there is more that macro fundamentals cannot justify at the capital market at the point, which can be better justified by the liquidity level where it flows or potentially macro catalyst.
04:58For example, I would say, you know, in the near term, what will probably, you know, get investors more excited?
05:06The news of a fourth plenum, Xi and Trump meeting at the end of the month, or potentially a set of, I would say, relatively weak set of activity growth indicators that may come out at the end of third quarter.
05:20So basically in two weeks time, when we look at the data and then we were like, OK, it doesn't look necessarily that good.
05:27Would the market worry about it or shrug it off and move on?
05:30I don't know. It looks like that right now. The sentiment is more tilting towards the latter.
05:35And it more looks forward to what could potentially be announced for the next five years.
05:41And how about the China-U.S. relationship?
05:43So those could potentially be the main drivers.
05:47The PBOC released a statement, I think it was Friday on the weekend, the quarterly monetary policy statement.
05:53I think they introduced language around supporting the equity market and the bond market, something to stabilize the market.
06:01How important do you think the market, a healthy market is in terms of economic, the broader mix of economic policy?
06:08Well, David, we have to look at what they say and also look at what they do, right?
06:13They may say this, but we don't know how much will be done.
06:15But indeed, it looks like there is more focus on the market.
06:19And I think what they are trying to convey the message is always that a financial market, a healthy financial market, especially with a slow bull, right?
06:27In stock market and also a relatively healthy bond market will be very helpful to the macro fundamentals.
06:37And we believe that will be the case.
06:39What they are really afraid of is seeing a very sharp slope in either way.
06:44So either it goes down very quickly or it goes up very quickly, policymakers will be worried.
06:49As long as you are slowly but surely approaching a certain level, that's OK, either on the upside or downside.
06:56So I don't necessarily think that policymakers have a specific goal.
07:00Let's say Asia are going to $4,500.
07:03I don't think there is anything like that.
07:05But they are more caring about, let's say, the slope of changes and also like what Yvonne was saying earlier, whether for households, whether they are relocating their long-term savings towards somewhere that can earn them better and safer returns in the long term.
07:25So Golden Week is coming up.
07:27Are you optimistic?
07:30I'm not traveling.
07:31Are you optimistic about what we could see in these next eight days?
07:35Well, I think that what is coming out is potentially going to look reasonably good.
07:39I think that at this point, people, when they are not necessarily thinking about buying properties, more are actually diverting their disposable income into services such as traveling.
07:49So when people are, you know, we were I was just in London recently.
07:53A lot of investors are asking when property prices are going down so sharply, does it mean a very negative wealth effect on spending?
08:00In fact, we have not seen such pronounced impact on spending.
08:04Instead, we see the crowding in effect when people are not saving so much, you know, into the down payment of the next apartment.
08:11They actually can live a little, right?
08:13They can spend a little.
08:14And we think that maybe the Golden Week will be the time when we can put it to test to see whether retail sales shows a little bit of more improvement there.
08:22Well, speaking of how did we track in September as far as the activity numbers are concerned?
08:28So in other words, in two weeks time, the activity numbers for September, how do you think they'll look?
08:32Well, I would say that we probably are going to see IP holding up reasonably well.
08:37Of course, let's see how, you know, exports is going to fare.
08:40But my suspicion based on the PMI today is that IP is going to be still in the ballpark of five to six percent.
08:47But I think what worries me would be the continued divergence between retail sales and fixed asset investment, which drifted lower and lower versus the IP.
08:59So what I worry about is that in year-to-date terms, we could start to see fixed asset investment drifting towards zero.
09:06It was already like close to zero last month.
09:09And at this pace, we can probably see it dripping into negative territory very soon.
09:14Well, this doesn't mean that investment growth is negative because fixed asset investment is a nominal series.
09:20So when we deflated with a PPI deflation in place, we probably will still have positive, slightly positive gross capital formation investment growth.
09:29But that said, I think that still sends a very strong message, which is with the anti-involution campaign in place, et cetera, you know, new capacity is prevented from being added.
09:40And we are seeing, you know, the overall economy taking a toll on the demand side.
09:45And that would imply that if you continue to push for the supply side expansion on a stable level, and however, your demand is not strong enough and you don't want to stimulate it because you feel complacent,
09:58then the big gap in between basically means it either has to be exported or it has to be turning into inventory at home.
10:05In either way, there will be deflation of pressures either here or overseas.
10:09Or там outside.
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10:20Thank you so much.
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