Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Speaker: And now onto today's show.
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Speaker: Hello from Hong Kong and welcome to Under the Banyan Tree.
Speaker: I'm your host Harold Wendelinde, Head of Asian Equity Strategy at HSBC.
Speaker: This week we'll be looking ahead to the National People's Congress, the NPC, where China's top brass will unveil key economic targets and policy goals for the coming year.
Speaker: Joining me with a key fuse from our China macro team is Chief China Economist Jing Liu.
Speaker: Will terrorists dominate the agenda?
Speaker: Are we set for a bounce back in property?
Speaker: And what do we make of a rare top-level meeting between political leaders and tech CEOs just before the event?
Speaker: All that and more coming up under the banyard tree.
Speaker: A bit of background info before we get started.
Speaker: The National People's Congress, or NPC, takes place on the 4th and the 5th of March.
Speaker: This is where economic and political leaders set the agenda for the upcoming year, including the all-important economic growth targets.
Speaker: Of course, all this comes against a backdrop of uncertainty, with U.S. trade tariffs still looming over China's macro outlook.
Speaker: Time to bring in this week's guest, a good friend of the podcast, Jing Liu.
Speaker: Jing, welcome back to the show.
Speaker: Thank you, Harold.
Speaker: Glad to be here.
Speaker: Well, the very reason we have you in here is to talk about the NPC that's going to take place next week.
Speaker: So I'd like to get a bit of an idea of what you expect to come out of that.
Speaker: But before we go there, I'd like to take a step back because a couple of things have happened in the last one or two weeks or so that I think are significant.
Speaker: First of all, we've seen Xi Jinping meeting with some of the leaders of the largest tech companies in China.
Speaker: That seems to be somewhat significant to me.
Speaker: What do you think about it?
Speaker: It is, because it doesn't happen that often.
Speaker: The previous time it happened was in 2018.
Speaker: That was also during the U.S.-China trade tension.
Speaker: And I think basically the signal here we can read is that probably this marks a decisive turn in terms of policymaking.
Speaker: We saw a lot of policy tightening in 2021, and that lasted for a couple of years in
Speaker: Those were those regulations that came out in education and internet, exactly what you're talking about.
Speaker: Those happen to be dominated by the private owned enterprises as well.
Speaker: So now all the top officials are seeing the owners of private companies and trying to send a signal.
Speaker: There's going to be policy tailwind for them to grow and they're supposed to lead the innovation in China, trying to provide more jobs, etc.,
Speaker: So it's a good signal.
Speaker: Yeah, that's what I thought as well.
Speaker: It was just a signal we are here to support you.
Speaker: That was the first thing.
Speaker: Secondly, it does seem that some of the policy measures that they've taken last year, in particular with regards to, for example, property, making it easier for people to borrow money and buy property,
Speaker: That seems now to filter through.
Speaker: And I saw a report from our colleague, Michelle Kwok, who says that actually we see home sales moving higher in certain cities.
Speaker: Is that a fair assessment?
Speaker: Are things improving in the property sector?
Speaker: Yes.
Speaker: Fair enough, we have seen quite some green shoots associated with the property sector.
Speaker: And you can probably guess it starts from the large cities, tier one cities, strong tier two cities.
Speaker: We see the property sales both in secondary market and primary market start to pick up.
Speaker: And you can say some people thought there could be more forceful policymaking, but eventually we see the right direction.
Speaker: So we see a shift in attitude towards the private sector.
Speaker: We see that some of the stimulus measures that they put in place last year starting to create green shoots, as you say.
Speaker: It gives a feeling that we've turned a corner in China from a sort of economic point of view.
Speaker: And with that, then I look at the NPC, keeping that in mind.
Speaker: What do you expect to come out of the NPC?
Speaker: What's important?
Speaker: What will you be watching for?
Speaker: Right.
Speaker: So normally people will keep an eye on where the growth target will be.
Speaker: This time around, because of the rising external uncertainty, I think most likely the government will allow some flexibility in the growth target.
Speaker: So instead of fixing it on one number, probably they will set a range, say 4.5% to 5% of GDP growth.
Speaker: Mm-hmm.
Speaker: And in order to achieve that, we still need policy support.
Speaker: And in particular, we need to see the buffer for the potential loss in the export.
Speaker: Although the actual exposure of China to these tariffs is somewhat limited, right?
Speaker: Yeah, it's small.
Speaker: Our colleague, Fred Newman, who's another host on this Under the Banyan Tree podcast, he estimated only 2.5% equivalent to China's GDP.
Speaker: That is export to the US.
Speaker: Yeah, 2.5%.
Speaker: Well, total exports, I believe, in his numbers is like 12 or 13%.
Speaker: And that means that if there are terrorists, what you're suggesting is that maybe they put some policies in place to offset that threat, right?
Speaker: Is that fair to say?
Speaker: Yeah, that's fair to say.
Speaker: I think this time around, the government is looking at some strengths from within because the trade tension is not just with the U.S. Other trading partners are also concerned about China's rising expo competitiveness.
Speaker: So some would say that this might be the much needed catalyst for China
Speaker: Chinese government to finally make up its mind to stimulate the domestic consumption.
Speaker: What could they do?
Speaker: I mean, just give people vouchers or is it you lower taxes or?
Speaker: We will see both the technical and structural measures.
Speaker: The consumer goods trading program actually received a very good record last year.
Speaker: So they're going to expand that to cover more categories of goods.
Speaker: And some service consumption might receive direct subsidies as well.
Speaker: And on top of that, we see the measures to lift the income and income outlook.
Speaker: For example, some provinces start to increase the minimum wage.
Speaker: And we also see that on the social benefits side, there's some improvement.
Speaker: And I guess this then puts that meeting with tech again in another context, whereby if you want increases in income, which is the only sustainable way to lift consumption, yeah, you need employment, you need them to flourish, you need a private sector to flourish.
Speaker: So that's maybe what that meeting was a little bit about as well, right?
Speaker: Yeah, exactly.
Speaker: Because in China, majority of the jobs are provided by the private-owned enterprises.
Speaker: Anything else that you expect to come out of the MPC?
Speaker: So you say basically they'll do something to offset the export losses that they might face.
Speaker: They'll go for domestic consumption.
Speaker: Anything else that you think might come out of it?
Speaker: So we have heard the finance minister and deputy finance minister repeatedly emphasize that they're going to have much higher budget deficits.
Speaker: So they're going to spend more money.
Speaker: That's right.
Speaker: And on top of that, this will be another record year of government bond issuance.
Speaker: And when government issue more bonds, the Central Bank of China will come in and resume the purchase from the secondary market.
Speaker: That way, it can inject liquidity.
Speaker: That's a quantitative type of easing.
Speaker: Yeah.
Speaker: But it means the government is going to borrow more money.
Speaker: And that allows them then to spend more on all sorts of projects.
Speaker: And that is supposed to boost growth as well, correct?
Speaker: That's right.
Speaker: And don't forget, th is is also the last year of China's 14th five-year plan.
Speaker: And they're going to introduce a new blueprint that will include the fiscal reform, which aims to address the problem China has repeatedly faced, which is a local government debt problem.
Speaker: So a lot to expect.
Speaker: Now, that's all very nice and well, but last time I looked, it looked like the Chinese consumer was still not really confident.
Speaker: You could tell them whatever they wanted.
Speaker: They were not going to spend because they felt very uncertain.
Speaker: That was the story of last year.
Speaker: Has that changed?
Speaker: Yes, indeed.
Speaker: I can see the improvement on the margin.
Speaker: So basically, I was in China last week.
Speaker: Apparently, the recent technology breakthrough, the DeepSick, it doesn't just boost the stock market, but also boost the confidence.
Speaker: We see that startups, private companies are eager to deploy the AI tool in a hope that it can drive some efficiency gain.
Speaker: So probably it's also attributable to the government effort.
Speaker: So putting things together, it seems like people are more optimistic with a wealth effect probably coming from the stock market.
Speaker: We might see more people spending.
Speaker: And that would be also, again, important for the stock market because Chinese households have an enormous amount of cash and they haven't really used it.
Speaker: They've only put it into the most safest or safest sort of investments in the Chinese stock market.
Speaker: But they have not been really willing to go into other parts of that market.
Speaker: But that seems to change now.
Speaker: And you're right that DeepSeek was still maybe a bit of a turning point whereby companies can benefit from that and maybe that brought a little bit of confidence back.
Speaker: Yes.
Speaker: So on that, can I ask you, compared to last December's rally, do you see any difference in terms of the sentiment?
Speaker: Yes, I think this rally is starting to become different.
Speaker: So first of all, I think the market rallied because it was...
Speaker: I mean, it had come down a lot.
Speaker: Most people had reduced their exposure already.
Speaker: So you just need a little bit of money being reallocated to equities.
Speaker: And that can actually be quite forceful to market performance.
Speaker: That's what we see in all markets.
Speaker: And China is no exception in that.
Speaker: And that's what happens.
Speaker: You get a bounce from the bottom, you could say.
Speaker: But if, for example, as you mentioned, you see that employment prospects are improving, that confidence is coming back, I wouldn't be surprised that some of that money would go into Chinese equities.
Speaker: And the nature of this rally looks to me different than other rallies we've seen.
Speaker: Other rallies petered out very quickly.
Speaker: So they went up and then it came down again.
Speaker: And at the moment, we haven't seen that yet.
Speaker: We've seen it going up and it actually stays there.
Speaker: So we'll have to see how this is going to unfold.
Speaker: But the dynamics that seem to be at play this time around is different, I have the impression.
Speaker: But we need to see what comes out of this MPC meeting to see if this is sustainable or not.
Speaker: And without a doubt, we have to bring you back on, Jing, to give us more insights of what happens really in China.
Speaker: But thanks for enlightening us already with your views on what you think is going to happen with this upcoming meeting next week.
Speaker: Thank you, Haro.
Speaker: Talk to you next time.
Speaker: next time.
Speaker: And we're going to have to leave it here, folks.
Speaker: Thank you as always for joining us.
Speaker: Under the Banyan Tree is an HSBC Global Research production.
Speaker: We'll be back again, same time next week.
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