← Sharp China with Bill Bishop
Sharp China with Bill Bishop
(Preview) Stabilization Measures and Export Questions; Taiwan Considers US Arms Purchase; TSMC Halts Advanced Chip Sales to China; Trump Tea Leaves and Cabinet Picks
00:15:55
Loading summary
Transcript23 lines
- [00:00]
A
Foreign hello and welcome to Sharp China. I'm Andrew Sharp and you are listening to a free preview of today's episode. Hello and welcome back to another episode of Sharp China. I'm Andrew Sharp and on the other line, Bill Bishop. Bill, how you doing?
- [00:22]
B
I'm well, Andrew. Hi, everybody. Hope everyone's doing well.
- [00:26]
A
Yeah, it's nice to be back. It's another beautiful week in D.C. and honestly, talking to you, I ran into you on Monday and we thought things might be slow coming out of the holiday weekend, but there's actually a bunch of different news to hit on this episode, so.
- [00:41]
B
Yeah, well, and the thing is, is sort of Remembering back to Trump 1. It's never slow. And we are, even though Biden is technically still the president, you know, all the air has been sucked out of that lame duck administration. And so the focus, of course, is Trump, at least when we're talking about China. So, yeah, that's part of the. It's exhausting on a whole bunch of levels. Well, and it's only getting started, right?
- [01:04]
A
I mean, Fast and furious. The last 24 hours, there have been new nominees and appointees to the administration. There's speculation about what Trump might want to do. And so we'll get to all of that with the second half of the episode. We will start, though, with last Friday's announcements from the NPC Standing Committee and I'll read from cynicism Monday. Don't call it stimulus. You wrote the package announced Friday to help with hidden local government debts should help stabilize local government finances, but it is not the stimulus many were hoping for. While this package, along with what the government calls a basket of incremental policies, should stabilize the economy for now, so far they have done little to address the growing deflationary pressure or the massive trade pressure Trump may unleash next year. So the announcements largely focused on relief for state governments. The rumors of a more ambitious stimulus package once again proved unfounded, at least for now. How are the animal spirits after this announcement?
- [02:14]
B
I think the animal spirits have been a bit exercised by this, by this whole process. What was interesting is in the press conference on Friday. So actually it turned out, you know, there I had written about it and there had been talk in a previous version. You didn't hear about it until late on the evening of, of the close of that npc, of an NPC Standing Committee session and it was announced on the state television on the CCTV news. This time they actually held a press conference. They're trying to be more communicative. What was interesting in that press conference was the revelation, among other things, that the package had been approved back in September by this popular standing committee which was. They had met, I think the day or the two days before the actual popular, where we got that popular, this sort of out of psychopolpur meeting that had as the agenda economy. And so again, you know, this has been a done deal that, you know, they went through the process, but it's like, it's just one of those things where you sort of. I think some of the frustrations about the system is they raised a whole bunch of expectations then, oh, we have to go through this process. They had a couple, you know, one particularly bad press conference soon after the October holiday which deflated things a bit. And then you sort of had various leaks and speculations. I think Tyson back in mid October had probably the closest to accurate first report on what this would be. And it's just like, you know, they could have just said it then and set expectations and moved on instead of building up this five plus week set of expectations and allowing rumors to fly that oh, maybe it'll be even more, maybe there'll be more for, you know, a couple trillion for consumption, you know, yada yada yada. And then inevitably what comes out then is disappointing. Mm.
- [03:53]
A
It's interesting because this sort of took on a life of its own in full view of the party and there was never any intervention to manage expectations.
- [04:02]
B
Well, they did. I mean, I think they did because they kept talking about how this is a basket of incremental policies and you know, they're trying to, you know, they've been talking about how it's not just, you know, this long awaited NPC standing committee meeting, but all these other things they've done from the People's bank of China. And it's just very, you know, dealing, cutting mortgage rates, cutting down payment rates, relaxing housing purchase restrictions, you know, et cetera. It's a long, long list of consumption upgrade stuff or consumption like swapping, I guess. You know, basically you can trade in your old stuff for, for new things. You know, they, they talk about this sort of, this basket of incremental policies and, and the problem is the market could really run because these animal spirits have been unleashed, but they needed more than incrementalism. And so I think now it's kind of back to reality, which is, and it's interesting because especially the way Pangong Sheng talked about the facilities for like the 500 billion that qualified firms could borrow to buy stock. And then if that's not enough. We'll do more and that's enough do more. You know, it feels like there was some, a little bit of cross purposes in the bureaucracy because that messaging was really more of a, you know, at least it was taken by the investors, by investors in the market to let's get, you know, we're going to get the market up and things are going to really move now though, we're back to okay, it's just, they're just going to grind away. And so I think that it's certainly from, you know, I go back to my point in a few podcasts ago where I think that it's still very possible you'll have a significant difference between what happens on the A share onshore markets in Hong Kong or the overseas list of Chinese shares where I think there still is still the possibility that you'll see more of a quote unquote bull market on the A shares. I think though, when you look at Hong Kong, we look at the Chinese shares overseas, between this, I think some communication issues and this incrementalism and the fact that it really is focused on stabilization versus stimulus as well as now what's coming, what's likely coming with Trump and the pressures that are going to be put upon the Chinese economy by the high probability of some pretty significant tariffs and all sorts of other decoupling pressures from the US Government, I think that that is makes it even harder now for foreign investors to really want to start putting more money back into Chinese equities.
- [06:25]
A
Right. Well, and you mentioned the reporting from Sicheen earlier this fall. There was also a Sicheen story this week that said a growing consensus is emerging around strengthening demand side management with macroeconomic policies shifting from an investment led focused to a balanced approach that gives equal priority to consumption and investment with greater emphasis on consumption, said an expert close to the PBoC. Going forward, as more supportive policies are rolled out, deepening reforms will be essential to significantly expand domestic demand. So what did you make of that report? Because one of the things we were talking about earlier in the fall is all right, maybe the other shoe will drop after the National People's Congress Standing Committee meets and there will be more done on the consumption side. It sounds like there may be more done in the next several months to stimulate domestic consumption, but I don't know.
- [07:24]
B
So, so two things. One is I think that fits with the incrementalism three things actually. Second it again it's leaking. That's how she and something's coming without specificity which again I think is a maybe they think they're managing expectations to give confidence.
- [07:45]
A
That's what I was referring to earlier because they keep doing these sort of vague promises and it's that markets are reading a lot into what's being promised and there thus far has not been any sort of material.
- [07:58]
B
Well, I think now though the problem is I think people, more and more people feel burned by what happened at the end of September and October. And then the third point is just that when they talk about things like deepening reforms will be essential to significantly expand domestic demand that goes back to the third plenum at the end of July. And I think they must be talking about reforms around basically to you know, deal with things like hukou medical insurance retirement so that, you know, education related expenses so that people feel like they maybe don't have to save as much, they can start spending more money. Right. But again, and that was, you know, that was the list of reforms from the third plenum look could be really interesting if they're implemented and I think they put a timeline on it so we should expect implementation. I guess it's more about a sort of a, an expectations management and how the way that some of the talk at the end of September, I think specifically from the PBOC from Pang Wong Zhong was viewed in the market versus what's really happening in terms of this more of a focus on stabilization and incrementalism. And you know, the state media, the People's Daily has last Monday and Tuesday had front page pieces basically talking up the sort of why you should be confident in the Chinese economy, making it clear that they now think they're going to hit their 5% year on year growth rate for 2024. So on the one hand, you know, something in September got the attention of the top leadership that made them have this out of cycle popular meeting and start sort of push harder on stabilization policies. On the other hand, they seem relatively confident that they're going to hit their target. So it's like okay, we're just got to you know, maybe add a little gas here, add a little gas there, react, tweak here, tweak there, don't overreact. Steady as she goes. And that, you know, again that may work and it's certainly and I think there's reason to be skeptical, but it does not then lend sort of lend more ammunition to sort of the idea of animal spirits. And so it goes back to I think what yesterday the People's Daily piece, they talked about it specifically, right. This idea that, you know, you don't want a crazy bull, you want a slow bull.
- [10:24]
A
Slow and strong.
- [10:25]
B
Slow and strong. And so I'm trying to think, where was it? Did I put it in here? It's sort of slow and steady. Right. So we should avoid being a mad bull Feng Niu and aim instead. Aim to be a slow bull. Manual so basically that then is probably not great for the idea of animal spirits, at least in the short term.
- [10:49]
A
Medium term could change the some of the incremental policies like solidifying some of the social programs and expanding them so that people feel more secure and are less prone to just save all their money. That makes sense because that's one of the challenges.
- [11:09]
B
Talked about for, talked about for many, many, many years and come up as a needed reform for many, many years. And so the question is, this time is it different and they're actually going to make it happen from the third party?
- [11:21]
A
Well, the other question is if you just gave people money, would they just immediately save that money? Because that's how dire the sentiments are. And people are worried about their future and worried about their real estate investments. I mean, one of the challenges that policymakers face. But when you zoom out, I mean, watching all this, on one hand, you have a bunch of traders around the world who are waiting for a stimulus in hopes that the market will pop. And so that has sort of been its own parlor game. And it can look kind of ridiculous. Animal spirits this, that and the other thing. On the other hand, though, there are a number of obvious structural issues with the Chinese economy right now that have not really been addressed by the flurry of announcements from the PBOC and the other state officials this fall. And like, there's this second group of economists and China watchers who have reasonable questions about when or if Xi is going to take any action to stimulate domestic consumption to insulate the economy from not only deflationary pressure, which seems pretty real, but also like geopolitical vulnerabilities and some of the trade policies that might emerge over the next couple of years around the world. We have no real answers on that question after the last two and a half months of speculation.
- [12:41]
B
No, but, but, but I would say it, it, you know, the base case really should be this is a incrementalism. They're, you know, they're not, not going to fundamentally deviate from the course they've set. It's just how do they, how do they keep things moving forward? And so, you know, it's like waiting for Godot, waiting for stimulus.
- [13:00]
A
It's it's sort of not Here we are again, right?
- [13:03]
B
You know.
- [13:03]
A
Well, I'm not holding my breath, but I just feel factors in play. I mean, like another aspect of the conversation while we wait to see whether any consumption stimulus measures ever materialize. You also noted Monday that the PRC is on track to have a $1 trillion trade surplus with the United States this year and planning to provide more support for exports, per the readout of last week's State Council executive meeting. And as I read that Monday night, I saw a tweet like 20 minutes later from someone named Jostein Hague, who wrote, china is taking over global manufacturing. By 2030, they will account for 45% of global manufacturing. That's one country making nearly half the world's stuff. How do they do it? Strategic industrial policy with a long time horizon. And this is one of the great paradoxes of the PRC success story in modern times. Because, like, it's true that the manufacturing growth and the industry planning has just been outrageously successful and made in China 2025. Like, it's almost 2025, and for all intents and purposes, that worked and is an example of really impressive foresight and execution. But on the other hand, it's also becoming clear that the rest of the countries around the world are not blind to all of these changes and some of the threats that they pose. And it seems like the PRC policymakers are a little blind to the possibility that countries around the world will answer industrial policies with stronger industrial policies and trade policies of their own. And so it's like the foresight only seems to extend so far, and I have not seen any groundwork being laid for a contingency plan in the event that, you know, most of the biggest consumer markets in the world start to more aggressively decouple from the massive manufacturing beast that China has become.
- [15:05]
B
Well, I think their baseline assumption is that that won't happen for most of the big markets.
- [15:11]
A
All right, and that is the end of the free preview. If you'd like to hear the rest of today's conversation and get access to full episodes of Sharp China each week, you can go to your show Notes and subscribe to either Bill's newsletter, Cynicism, or the Strathecary Bundle, which includes several other podcasts from me and daily writing from my friend Ben Thompson. I'm an incredibly biased news consumer, so I think both are indispensable resources. But either way, Bill and I are going to be here every week talking all things China, and we would love to have you on board. So check out your show notes, subscribe and we will talk to you soon.