[CC may contain inaccuracies] Well, I would say that the July number indeed looked pretty weak.
But given that we already saw the MLF rate cut a few minutes earlier, I guess
that was no surprise to anyone. I think the policy is already shifting
away from the mentality well of, you know, even if we cut by ten, 15 basis
points, what good is that going to do? Right.
Is that going to make a huge difference to right now more like, well, we'd
better do something otherwise, you know, it gets keep getting worse and it shows
that we're actually in action and then we could be blamed for that.
So we think that the central bank mentality has shifted clearly since the
previous cut, and now they're being more responsive.
Are we starting to see the signs that maybe the weakness in the property
sector is now starting to hit consumption and actually dragging down
consumption with it? Yes, indeed.
Well, we look at the consumption numbers, well, not exactly the
consumption number, but the retail sales.
Retail sales, however, has a cash unit, which is it is a retail retail sales of
consumer goods. It doesn't necessarily include enough
services. Actually, back in July, I do think that
the consumer services were booming and look at the box office at an all time
record high. Look at the transportation
accommodation. That was okay.
The consumer product sales probably were not doing very well.
Not to mention that compounded by the fact that this is a nominal series and
your CPI inflation was really low. So that probably contributed to a low
number. When do the measures announce from the
Politburo meeting? When do they start to kick in and show
up in the numbers? I mean, how many months are we talking
here or weeks? Well, in theory, we should be seeing
them now. I would say that the Politburo meeting
has effectively led the hope for the market that something can be done and
can be done relatively soon. I would say that they could have started
with something easier, such as the interest rate cut they're starting from
now and probably some adjustment in the property market, for example, the HPR
and also the restriction to mortgages, HPR being the housing purchase
restrictions. Now, it doesn't cost anything for them
to remove that, right. So that should be the first step.
Together with the restrictions on mortgages, I think we're hearing news
that second tier cities are starting to do it.
There are also those who are reporting that they could be moving some of the
debt that we're seeing a local government level to provincial.
I mean, is that a sizeable move, you think, in some ways of how they resolve
the issues? That's a great point.
Actually, we think that is probably the most important point that that they are
they have mentioned during that the Politburo meeting, because before the
Politburo meeting, most people would say, oh, you know, it's a long term
problem. And because of the potential moral
hazard issues that this could ensue, nobody should be bailed out and the
central government should not do anything.
That was before politburo. But when they saw it in the readout,
people suddenly realized that these top decision makers saw the problem and
they're about to address it. The the comprehensive package Elan to
see what basically means that you do not have one cot fits all, kind of a one
size fits all kind of cookie cutter approach.
You need probably different kind of things to address Lgv debt and the
publicly traded that off balance sheet stuff, trust loans and commercial bank
loans. So we are waiting for more of such
indications to come out. So what does that do specifically when
you move some of the high risk lgv debt to provincial governments?
I think they're going to issue bonds then to then fund some of that debt.
What does that do in terms of unlocking the growth capacity?
Is it infrastructure spending? And and what does that because they're
also transferring the load also. It's almost like a debt swap.
What does that also do as far as the debt loads for provincial governments?
What what is trying to do is that at the point one, the household sector as well
as the private sector are lack of confidence to lever up and invest.
We need a public sector to invest. They need to lever up.
So where do they get the money? Apparently for local government and
Algarve, which are loaded with debt already, it is very difficult to borrow
more and compound into the already very high debt servicing cost and therefore
to things needs to be done. Number one is to restructure the current
debt stock, mainly to extend the maturity and lower the interest rate.
And the number two is, is to create a new channel for them to borrow,
hopefully by leveraging on the central government's balance sheet, not local
governments anymore so that they can borrow and then, you know, invest as
soon as possible to create jobs. So that's what needs to be done.
We think the direction is pretty clear. Proposals have been submitted to the top
decision makers already, and therefore we think it's probably in the brewing at
the moment.