China's Xi Voices Support For Private Sector
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Dan Schwartzman in for Doug Krisner. We begin in China, where President Xi Jinping hosted a number of the country's most prominent tech entrepreneurs. Xi voiced support for the country's private sector, seen as integral to reviving China's economy. For more on the China story, we hear from Hao Hong, chief economist at Grow Investment Group. He spoke to Bloomberg's Sherry Yan and Heidi Stroud-Watts.

It's been a few years and so much volatility and ups and downs for the Chinese market since then. Do you think this is a sustainable rally?

It's a good rebound. So I think before it really evolved into multi-years of a rising trend, a lot needs to be done. And for now, I think many of us are still seeing fundamental problems with the Chinese economy. So as such, the earnings growth hasn't been sustainable for some time. For the past 10 years, earnings per share in the Chinese market is more or less the same. So basically, the change in the stock price level has been the result of

changing in valuation multiples. So if you really want a sustainable bull market for the long term, you really want a sustainable growth model going forward.

There's a lot of optimism about these cheaper AI models and perhaps that China could lead the way when it comes to the new tech revolution. Could that sustain those expectations? I think for now, people are really enthusiastic by the prospect of it. I think DeepSeek did a really good job to break the technology hegemony and the embargo from the U.S. Now, having said that, though, I think it's still very difficult to see how

to monetize from this app. And also, you know, Chinese are renowned for not willing to pay for software. So I think if you look at back in the 90s, right, so when Windows was first introduced to China, so basically 95, 99% of the copies used in the market is actually pirated copies, all the way until like 10, 15 years later.

So, you know, it's a difficult market to monetize. I think it's still very early stage. It's a huge breakthrough, but then at the same time, you know, for now, I don't see a good way to monetize it. Does the Xi Jinping meeting, the idea of Beijing's endorsement for the sector now, does that still have the same power that it would have used to as some sort of government put?

I think back in 2018, November 2018, there was a similar meeting with the private entrepreneurs in Beijing. And back then it was at the depths of the trade war back then. And the Chinese market didn't bottom until like two, three months later in January 2019. So that is telling you a lot about, you know, the signals from these meetings today.

can be fleeting. And also yesterday, if you look at the market reaction, you know, firstly, the market was rising strongly in Hong Kong, but then regurgitated a lot of the gains towards the end. And also yesterday, you know, the best performing sector is actually the SOE sectors. The private sectors, for some reason, is lagging substantially yesterday.

And I'm guessing you think that none of this exuberance or that we've seen so far is enough to counterbalance against the broader economic malaise, the property overhang. What more can the government do from a policy perspective to really change the mindset there?

Yeah, I think so far this technical rebound has been a result of the sentiment change. So because the deep-seek moment really woke up the Chinese investment community and see, well, what is possible going forward? And also the Chinese tech sector valuation has been depressed for a long time. And some of the foreign investors have been buying for a sort of a trading opportunity.

And I think that's sort of a set of the rally in the past months or so. I think right now, you know, we're running into a very strong resistance level. Right. So these are key technical levels. And many of our technical indicators are actually running into very strong resistance. So for the market to go substantially higher from here, a lot needs to be done. A lot of policies needs to needs to be said, you know, in March in the coming twin sessions.

Always with the voice of caution there. But I really find it interesting the timing that you have President Xi Jinping putting all of these tech leaders in the forefront of what he's trying to achieve. How much is this to do with the Trump trade tensions,

with potentially the rivalry that's just going to heat up in the next few years and how Beijing needs to position for that. And given that sort of external threat, could you see it being more proactive in terms of helping the private sector?

I think to a certain extent, China needs the private sector to be strong more than ever now. I think the government is indeed trying to help the private sector to a certain extent. But having said that in the past few years, what gets really strong is the SOE sectors. So the resources is really going into the SOE sectors. And because of the incentive system, the commercial banks are lending money

towards the SOE sectors rather than to the private sectors. Because if your loan goes sour, you have to be responsible, even if you left the job.

So that's the reason why the private sector is not getting enough credit. And if they really want to grow, they have to find a way to get credit from the banking system. Now with DeepSeek, for some reason, you use DeepSeek as an example. So the founder is actually a hedge fund tycoon. He's loaded. So he has money, he's willing to burn. And also for his own business, he's been using AI algorithm to trade, to make money from Chinese market and has been very successful.

And so I think DeepSeek is one of those sort of accidental sort of fortune that the founder used his own money to burn and there's very limited government intervention and therefore DeepSeek was able to flourish under such system. I think to replicate the success of DeepSeek really needs a really hands-off approach from the government.

i wanted to get your views on alibaba because i do wonder with this sort of return to the fold with jack ma how much could we see a re-reversal of uh barbara's fortune sprite because you can take a look on that chart uh 2020 november when the antarpo was called off we've not even seen with the recent recovery that stock price even halfway back to the previous levels do you think that this is the start of a meaningful improvement

Yeah, I think BABA has done a lot of work in the past few years, right? So I think it is actually leading the AI investments in China, right? So a lot of people didn't see the efforts, the endeavours that is being sort of undertaken by BABA.

Having said that, though, the stock has rallied for more than 50% now. So even though it's down substantially from the peak in 2021, people still need to see earnings growth from this company and also a better reception from the government for BAB and also for the entire private enterprise for people to pick up confidence

again in these sectors. Carl Holm, always great to have you with us. Partner and Chief Economist at Grow Investment Group. With Amex Business Platinum, your dental clinic can really sparkle. With a flexible spending limit that adapts with your business, that's the powerful backing of American Express. Not all purchases will be approved. Terms apply. Learn more at americanexpress.com slash amexbusiness.

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Welcome back to the Daybreak Asia podcast. I'm Dan Schwartzman in for Doug Krisner. For a look at the broader market landscape in the Asia Pacific, we heard from Ekaterina Bigos. She is CIO for Asia X Japan Core Investments at AXA Investment Managers. She spoke earlier with Bloomberg's David Inglis and Rebecca Chung Wilkins in Hong Kong. Let's start with China. Now that this

been liberated somewhat of the premium. What now? How do you look at the market right now? 30% into the rally. Of course. I mean, I think we have to break it down a little bit to look at where the rally is coming from. And again, it's very concentrated, as we know. The positive since the beginning of the year has been the deep-seek innovation. I think it's excited a lot of market participants and corporations in China about the potential implications of that

on the corporate sector. And again, in the longer term, that can have an implication on productivity. Again, new business, new revenue streams. And then, of course, we've had the meeting of Xi with various tech leaders at the broader tech industry. And I think that's a positive. I think it shows that the goals are aligned. But again, the market has not taken it

with additional, let's say, support in a rally sense, again, because we've had a meeting in 2018, and again, the consequences of the evolution of that has been somewhat different to what was, again, stated in 2018. I think it's a positive, but I think we have to be cognizant that the aim for China, I think the goals are aligned, and the aim for China is still common prosperity, is technological advancement, and the realization of the government that tech has a big contribution to that, and I think this is a positive.

I want to ask about and sort of shift gears to think about that a little bit more in the context of tariffs and Trump coming in. You know, in December, we saw the PBOC shifting its monetary policy stance, the most aggressive in 14 years, promising triple R cuts. The PBOC has sort of taught the talk. It hasn't walked the walk. And to some extent, there's been this relentless focus on instead prioritizing the stability of the yen.

How do you think investors are reacting to this? I mean, are they surprised, confused, disappointed?

Well, I think there's a limited room, I would say, for PBC at the moment to move aggressively, purely because, again, the Fed is on extended pause, if you might say. The monetary policy, we had indications that, again, the economy in the U.S. is stronger. The inflation is still resisting another three-point level in the core side. So, again, with Fed being on pause, again, puts a little bit more restraint to China and the ability of China to move.

continue easing without pressure on its currency. And I think the second part is what are going to be the next steps for the tariffs. I think the market is certainly not believing that this is the 10% was the end of the tariffs between the U.S. and China. And I think this is somewhat preserving some ammunition to understand what are the implications of the next stage of this tariffs

to continue to ease with the monetary policy. I think ultimately, and we've said it before, fiscal needs to do a lot more and fiscal needs to do a lot more in the kind of demand side, i.e. doing more for the consumer. And I would say if I had to kind of expand a little bit, the tech policy

positive leaning towards tech, it's again, it's somewhat an indication that they're willing to do a lot more demand time of support, support of confidence, support investor confidence, but also support private sector and consumers. That's a good point that you make on essentially trying to preserve ammunition when it comes to tariffs. Do you think that this potential for tariffs or tariffs that we're expecting to see, are they forcing the PBOC to break its promises?

And are we seeing a new playbook from the PBOC when it comes to dealing with the trade war?

Absolutely. I mean, look, there's a new playbook because there's no other playbook. You know, in the previous trade conflict, China was in a different state. It was an economic state, but also the monetary policy in a different stage. So at the moment, certainly it's a wait and see. They need to see how the tariffs, what tariffs, what the implication, what the size of those, the timing of that is to kind of craft their own monetary and fiscal policy accordingly.

What other things are happening right now? I mean this exuberance in Chinese markets might be sort of overshadowing other market themes right now. What else is on your mind?

I think the tech, broader tech, it's staying as a theme that is going to drive global investment, I think, for the next couple of years, if not a decade, because I think technological innovation and advancement is at the forefront of many economies. And I think what Dipsik has provided to investors is that there'll be more players to it.

And clearly, particularly in high development, when we look to build these models, US will build their own models in English. Probably there will be Chinese that will build some models in English and some in Chinese because, again, they need to cater to their own demand, right? So there will be certainly a lot more broader spectrum of players into this field that investors need to capitalize on. And again, the ramification of it at the moment is that it's still in a stage of development. It's still in the stage of training those models.

And those still have implication on building system, building the infrastructure, and still has a positive impact on the broader Asian economies, places like Japan, places like Korea, potentially Taiwan, that are part of that supply chain of building the infrastructure and the ecosystem for tech development.

We've already seen deep seek being banned from government officials phones, you know, in various countries. And of course, this concern and this theme of sovereign AI. I just want to ask, to what extent do you think these national security concerns are going to hamper the development of the diversity of what we see and also the ability for investors to be moving into new markets?

Absolutely, and this is a key concern. Again, the excitement is there. I think the potential for AI is certainly there, as I said, in terms of the ability of AI to enhance productivity, to provide new business lines and new revenues. But we need to look at, again, data security will be a big concern. We have to look at deep-seekers and optimizers.

open-ended. Again, anybody can build on that platform and that's a consideration on security. And as we go further down the line, national security, data security, data privacy, these are concerns that are still present. Again, beyond the fact that the excitement and the potential value of AI is still present.

And then we have the models themselves, you know, the data in which those models are getting trained, the hallucinations that they have or the data output that they potentially have that could be misleading. So there's a lot of still things that needs to be hashed out till we get to the end point where AI is really manifesting in the industries. I think at the moment it's still very much about tech, infrastructure, building, training and getting to that AI models that are right for particular industries of particular countries. Yeah.

Ekaterina, thank you so much for joining us today. That's Ekaterina Vigo, CIO for Asia X Japan, core investments at AXA Investment Managers.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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