00:00Your title of your report is China's economy isn't stalling. It's pivoting. Obviously, it's pivoting.
00:05It's pivoting to have a dual track and have more consumption. How long is this going to take them?
00:10It's going to take a while. And let's not forget that it has started during COVID when we have the...
00:15dual circulation policy. So I think China has been planning this for some time. And it's finally...
00:20sharing fruits or taking effect. So in a way, I think China has been trying very hard investing overseas.
00:25Both as a way to digest some of the overcapacity, domesticate, also trying to...
00:30reflect its capability of growing more broadly and more internationally. So I think in a way...
00:35this is helping China in the escalation of the tension around trade and...
00:40Yes, but how long can the economy keep on relying...
00:45on the old pillar and that is exports. Look at the trade surplus, a record, trillions of...
00:50dollars in surplus. That is causing angst among trading partners, no doubt.
00:55So you have to pivot a little faster. I think it really depends on not on China, but on...
01:00the rest of the world in their attitudes towards this, right? I think it's without a doubt that China's...
01:05manufacturing capability is beyond and above. And the question is whether that is going to bear...
01:10some unintended consequences in trade, in local employment, in...
01:15local politics. I think that is the bigger question about, well, how much of the Hadoin we're going to see...
01:20in 2026 from the rest of the world. At the same time, I always try to say that...
01:25well, the way how we see it is probably a little bit unbalanced. Well, China is...
01:30exporting a lot, but that's partly because we're not digesting or consuming as much as we...
01:35could or should. So in a way, I think the policy should be focusing more or acting...
01:40faster in trying to boost China's domestic consumption. Yeah, so the central economic...
01:45economic work conference and the latest plenum in December or November and then...
01:50now the National People's Congress and the CPPCC, the Longhui, the prior...
01:55really is going to be boosting domestic consumption. How are you going to do that without...
01:59exacerbating...
02:00exacerbating the fiscal situation? Because by most accounts, the local authorities do not want...
02:05to boost fiscal spending. I think that's part of the pivoting. I mean...
02:10yes, I do think that we should expand the fiscal deficit. I think that's the first and foremost.
02:15I've been advocating for in such a low-interest environment, we should be more...
02:20aggressive and then breaking the bank, so to speak, to increasing the ceiling of...
02:24physical deficit.
02:25but even if we were to keep the same fiscal deficit, I think there are at least two routes...
02:30through which we could make it more balanced and more effective. One is I think we should be more...
02:35effective in providing social welfare programs and trying to be more active in targeting...
02:40those lower-income or less privileged stratus of the society. So I think the...
02:45the marginal propensity to consume for that group is much, much higher for people who already have...
02:50one or two houses in leading cities. So I think that is one direction I have been advocating the policy...
02:55for lawmakers to make. Two is I think, I mean, there has been some discussion about trying to subsidize...
03:00subsidizing consumption, subsidizing interest payments for a mortgage so that you can...
03:05free up some of the purchasing ability from Chinese households and...
03:10finally, there is one very peaceful, powerful piece of advice, which I think is...
03:15expectation. How can you stabilize the confidence, try to improve the expectation so people are...
03:20more willing and more encouraged to spend? The confidence game. How do you boost...
03:25household confidence because they're holding on to their savings because their paper wealth...
03:29because of their...
03:30household, a value has gone down. So it's a chicken and egg thing. Which one do you resolve...
03:35first, right? Do you get people to spend or do you boost their confidence? How do you...
03:40begin to put a floor on the property dilemma?
03:45I think that's a harder question. I think I probably have an easier or better solution.
03:50which is the equity market, the A shares market. Okay.
03:53Yeah, I think it's not very easy to...
03:55to fix the property problem. After all, it was a bubble and you always have to live through...
04:00some of the painful adjustment and moderation after the collapse of the bubble.
04:05But now I think in Chinese households, their home assets are pretty...
04:10pretty much concentrated in either houses or equities. Equities used to be making...
04:15a much smaller fraction than it is now. So with hopefully a slow yet...
04:20sustainable bullish run in the A shares market. Hopefully we're going to see some improvements...
04:24in not...
04:25not only the wealth effect, but also the confidence associated with that.
04:28Okay. Well, the A shares have been doing...
04:30pretty well so far. Also the Rem&B has appreciated. We've seen it on the...
04:35you know, the daily fixing is... Well, today was a little weaker, but again, the trend has been...
04:40you know, stronger than seven. So 6.9 and change. How much further will the Chinese authority...
04:45allow that to happen? Given the deflation cycle is still pretty entrenched.
04:50Yeah. I think first and foremost, I'm very encouraged to see that...
04:55the A&B is going through this two-way fluctuation. I mean, because we had that reform of exchange...
05:00the Android mechanism about a decade ago. I think it's really nice to see that the market is now playing...
05:05a greater force in setting the exchange rates. I mean, of course, with the intervention of the Chinese government.
05:10But I expect there's further appreciation or strengthening in the R&B in 2020.
05:15in 2016. Although probably not as much as people were hoping for people from outside China.
05:20I think we have to keep in mind that foreign exchange plays a very important role in China.
05:25China's ability to export and given exports importance to China's GDP in the past two or three years.
05:30I think it's very hard for China to experience a large appreciation.
05:35And maintain its ability to export and also related to what you just described, I think...
05:40A bigger level, a higher level of appreciation is going to eat into...
05:45Greater deflationary pressure in China's domestic situation, which I think is...
05:50Related to the confidence problem that we're talking about.
05:52So I think those all matters are somewhat interlinked.
05:55And I think we have to be very careful with going into one direction, but not too much.
06:00Too fast.
06:01How much longer will the AI boom happen?
06:03I do know that authorities have come down.
06:05And cracking down a little bit on...
06:07Or tightening up the restrictions on listing requirements.
06:10Here in Hong Kong, because so many AI companies have come here to list, because they want to take advantage...
06:15How much of this boom?
06:16How much longer does it have?
06:17I think it will still run for quite some time, even though probably...
06:20With less enthusiasm.
06:21In a way, I think the run up of the capital market is trying to...
06:25To encourage China's AI entrepreneur activities and trying to use that to...
06:30To compete with the U.S. eventually from a national security perspective.
06:33So in that direction, I think that will...
06:35To exist.
06:36But then given how much enthusiasm has been poured into that in the past 12 months...
06:40I think the regulator is right in trying to curb some of that enthusiasm, try to sustain...
06:45And maintain a longer and gradual run, bullish run in the market.
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