Andrew, let's start with the latest news out of the US, China.
US tensions once again back to the fore. You got to imagine that might just dent
the rally we've been seeing so far. Yeah, but before we start that, can I
just get, get, get into it, get it, get it, read it out of my chest.
This, by all means, impose tariffs on EVs and on batteries and on cellular
telephones or whatever. If, in fact, there is a lot of evidence
that these are state subsidized. But please, please, please don't bring
these nonsensical argument of excess capacity.
If excess capacity is the case, then include Musk must have excess capacity
coming out of his ears because apparently he's exporting quite a lot of
his output. I'm a Ph.D.
in mathematical economics. I don't mind saying, and I don't mind a
nice little quantitative definition here.
Excess capacity simply defined the output that can be produced reasonably
with use of capacity minus inventories. I haven't seen anything like that being
dedicated or somehow calculated in the case of China, but I stress by all
means, impose tariffs if state subsidies is somehow distorting the prices and
this is why it's going to happen. So, Andrew, might we see an undoing of
the rally that we've seen in Chinese stocks?
Oh, most likely because China does depend for its growth significantly on
on on exports. And this is not going to help.
And of course, now said he cleared his throat.
What's the European Union? They are going to follow suit.
So, in other words, Biden, in effect, jumped the gun and started out first.
And the European Union said they have insane ID and they are going to do it.
And now they will definitely do it. They are going to impose also tariffs on
on electrical vehicles. But they all sectors within China's
market that may be looking pretty attractive.
And here case in point is perhaps China developers, they continue to extend that
gains by two or 3% today. And that's because in the back of cities
removing those restrictions on sales. What do you make of the property sector?
Is this a pivot point? Is it time to perhaps think about
getting some. You know, again, I'm stuck a little bit
on on numbers because I prefer not to base things on opinion, says, well, I've
got a good stomach in my feeling that things are better.
I'm always looking at the price of accommodation newly built flats in 17
major Chinese cities, and for nearly 22 months the price has been negative.
They are not been falling. No, no, no, no, no.
They have been shrinking. Once this has finished, I will feel a
little bit more comfortable to say that we are looking at perhaps the beginning
of the dawn in the property market because otherwise lifting restrictions,
remember, you can you can leave all the restrictions you want and you can tell
people there are plenty of mortgages for you to have at low interest rates.
And if there is no sense of confidence in the property market, all these are
not going to make any difference. So, Andrew.
Effectively, what you're saying is still stay away from China.
Never mind that foreign investors are beginning to, you know, dip their toes
into that market. It's not a matter of staying away from
China. It is a matter of looking at the
potential sectors at which something could or would happen.
And property sector is not it's not quite that.
Now, on top of that, we have an external factor on the export sectors of, let's
say electronics and cars and that perhaps a lever it is only with things
that are of purely domestic importance. Leaving aside the property, which is
quite a big of leaving aside so I could begin to roll out some and other weak
ideas, but at the same time saying keep away from China is keep away from China
whilst these things are happening. And whilst there has yet to be any
significant policy measures taken, we've had a skew of policy measures that we
are sadly subdivided and perhaps too much focused on specific areas of the
property market. Andrew There's been a lot of talk about
yuan weakness and how perhaps the PBOC may consider a devaluation of the
currency against a backdrop of a very weak yen, all in the hope of supporting
the economy. Your thoughts on that?
Do you see a major move, big bang move on the Chinese yuan?
Not really for two reasons. First, remember, a central bank can
either fix interest rates or exchange rates.
Not both, or they can try. Okay.
But then that implies a great deal as to how much they are going to use their
foreign exchange reserves and the impact this will have on their domestic credit.
In the case of China, the PBOC doesn't really have an interest rate policy.
Yeah, they have cut some rates but with a very small amount.
And also it doesn't really have, let's say, a foreign exchange.
Every poll is like Hong Kong cars. It has a kind of a snake in the tunnel
kind of thing. In other words, it is it is a managed
exchange rate. And the exchange rate has been allowed
to depreciate quite a lot. And the reasons for that is, is if they
are not willing to push interest rates up in order to maintain the
differential, then they will have to let the exchange rate go.
Very sensible. Okay.
So I don't see anything wrong or bad in the same way that people said, oh,
terrible things are happening in Japan because the yen has weakened.
Of course it has weakened because the Bank of China, the Bank of Japan has
actually begun to decrease interest rates, therefore widening the
differentials to the U.S. dollar.
Nothing wrong with that. You know, a horror and terror missing
out one on one economics. You can only have one thing at a time.
The thing is. No, I don't think anything.
Hmm. Andrew For the PBOC, though, how much
room does it have to cut rate given that the Fed is staying higher for longer,
might it take the opportunity perhaps in June or thereafter when the ECB does
start to cut its rate? Okay, Now, here we go.
Thanks. Thanks very much.
You raised a beautiful point for me, and that is the people you see controls
primarily quantity. In other words, a lot of the things they
do is they say we're going to reduce foreign exchange.
We're going to reduce the reserve requirements of the bank.
We're going to change a little bit in the way the reserve requirements have
been used. And they are not touching really
interest rates, which is absolutely correct.
They can either control quantity or interest rates, not the both.
And they are clearly unwilling to do too much on interest rates.
So I wouldn't be surprised that another decrease in their in their reserve
requirements of the bank are completely correct and consistent policies.