Trump's Call to Action at Davos, Hong Kong Financial Secretary Paul Chan
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Welcome to the Daybreak Asia podcast. I'm Doug Krisner. We are less than a week into the second Trump administration, and markets have been very busy reacting to various announcements from the president. It was early on Thursday that President Trump addressed the World Economic Forum in Davos, Switzerland, through a video link. And among his many remarks, he called on OPEC nations to increase oil production and lower cost.

I'm also going to ask Saudi Arabia and OPEC to bring down the cost of oil. You got to bring it down, which frankly, I'm surprised they didn't do before the election. That didn't show a lot of love by them not doing it. I was a little surprised by that. If the price came down, the Russia-Ukraine war

would end immediately. That is President Trump speaking earlier to the World Economic Forum in Davos. Joining us now is Paul Dobson. He is executive editor for Asia Markets at Bloomberg News, joining us from Singapore. Can we begin with the price action that we had in crude today? We saw a little bit of weakness in New York trading, and right now I see that in electronic trading, oil is continuing to weaken. I'm looking at WTI here, Paul, down about a

a little more than a half of 1% at around 74.20. How do you think this is being greeted in the Asia Pacific? Yeah, hi, Doug. So I think that in general, you know, the comments continue to weigh on crude oil, which, depending on if you're looking at Brent or WTI, is down for a sixth or a seventh straight day as well, the first decline for the year.

You know, in general, a weaker oil prices is good for oil importing nations, including some of the big countries in our region, Japan and India, for example. And I think that, you know, for the US as well, it has this extra benefit of, you know,

sort of showing that Trump is mindful of the inflation outlook and not being too inflationary in the policies that he wants to introduce, which is helping to control yields to a certain extent at the back end of the curve. And the equities market is taking a cue from that as well as being extra positive.

So you've got the benefit of cheaper oil in the first place, cheaper energy prices, but also, you know, that sort of inflation read back across, you know, all things being equal if the inflationary impulse from Trump's policies is lower, then maybe the Fed could continue to cut interest rates as well, which is also what Trump was saying that he would like to see. Conventional wisdom would suggest that tariffs in and of themselves are inflationary. It's kind of interesting that we didn't hear Trump making a lot of tough remarks today

where China is concerned. Did that surprise you? It has surprised me. And I think since the start of the administration this week, we haven't seen the extreme measures on China that had been touted by Trump during the election campaigning and even more recently than that. There was this talk of a 60% tariff coming on day one. In fact, no tariffs came on day one. And while he's been talking about it,

He has mentioned China, but more explicitly he's been talking about Mexico and Canada as the sort of proximate target. I think...

If you listen to what he's saying, there's a couple of things going on in the background that he feels like he would like to sort first, one of which is the war in Ukraine. He's talking about how Xi Jinping has a lot of influence there and could help to broker a peace deal. And he's also talking quite a lot about TikTok and getting that sorted. He's lent a little bit more favorably. He had that call with Xi Jinping about this time last week, which also gave a positive impression for the market. So that pressure that we...

had maybe been expecting to see from day one really hasn't come through so far. It doesn't mean to say that there isn't that sort of Damocles still hanging over China. And if there's a reluctance to do some of these deals, then maybe he will come back harder on the other stuff quite quickly. But it does feel like there's that, you know, kind of willingness to talk and to do deals with China that is taking just a little bit of pressure off of the UN and off of the Chinese equity markets.

We had a very interesting development yesterday where the government in Beijing took steps to stabilize the equity markets in China, and that included increasing pension investments in listed companies and also kind of guiding some of the state-owned insurance companies to do a little bit more buying of A shares. Is it having an impact on markets in China?

So, I think that it's unlikely to have an immediate impact. This is a very long-term policy, very gradual, steady inflows. Talking about mutual funds, talking about the sort of pensions and insurers, adding to their exposure over time. But that doesn't mean they're going to be buying on day one or day two. And in fact, you know, that's not really the purpose. The purpose is to give more of a long-term buy and hold investor confidence

kind of flow into the market that gives it that sort of more stable bedrock over time. So it was kind of positive for sentiment. We did see a little bit of a pop yesterday, but some of that eroded pretty quickly as well because of the more immediate concerns about the state of the economy. I think if you're looking on a five-year time horizon, then this is certainly a decent piece of news for Chinese equities overall. It's just not something that's going to turn around quickly.

I know next week we get PMI data for China as well as industrial profits. If you were to take a look at some of the high frequency data on China as we get ready for the Lunar New Year festivities in the coming week, how do things look right now?

Well, certainly in the fourth quarter, we saw a little bit of a pickup in the economy. That was enough to get the growth to the 5% target, more or less. But I think, you know, do not celebrate that. There were some emergency measures in the fourth quarter that got you there. And the fact that China was content with that tells you that it's not going to be pushing necessarily to get much stronger growth beyond that. That's the sort of...

the situation or the backdrop. I think what's going to be really interesting over the Lunar New Year holiday is to look at some of that fast flow data that we get in terms of spending, travel, transport, and things like movie attendance as well to see whether there is a little bit more of a glimmer of hope in terms of China consumer confidence. Doesn't really feel like it from most of the information that's been coming in and certainly the way that the market has been trading.

But, you know, perhaps there's the possibility that we get a slightly more optimistic start to the new year, given this auspicious time for people to be doing those kinds of things. So do you suspect that authorities in China would wait for those results, for that high frequency data to trickle in before deciding on the next policy move?

Never ruled it out. China loves to do things on a Friday afternoon, and we're getting close to that time. So it could be that there's action more immediately. But, you know, we've had to be very patient waiting for PBOC to move on policy. It's been doing quite a lot of short-term injections in order to make sure that the market has sufficient liquidity for this holiday period. Maybe...

it will confuse or become difficult to follow the whole question and equation if it were to act before the holiday. So maybe it makes more sense to wait until afterward. Paul, we'll leave it there. Thanks so much for making time to chat with us about what's happening in the Asia-Pacific. Paul Dobson, Executive Editor for Asia Markets at Bloomberg News, joining us here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. We go next to Davos, Switzerland, the site of the World Economic Forum's annual meeting. It was there we heard from Paul Chan. He is financial secretary of Hong Kong. He sat down with Bloomberg's Haslinda Amon, and the conversation covered Chan's outlook for both Hong Kong and mainland China. We also got his take on the threat of those U.S. tariffs. Here's part of the conversation.

Secretary Chung, thank you so much for joining us. Thank you for having me. Trump's tariffs have dominated conversations here. Now there are some indications that he's mulling a 10% tariff on China. What do you make of that? Well, this is something expected. But on the other hand, there could be also shocks to the financial market.

given his style. So for us in Hong Kong, we ensure our financial stability of course. In terms of trade,

The global South trade with China is growing, in particular Middle East region, ASEAN. So perhaps in terms of trade, in terms of supply chain management, we need to re-ally ourselves. Particularly over the past few years, a lot of mainland companies do go global as part of the national strategy. So when these companies go global, they need help. Hong Kong, we position ourselves as their risk manager.

and also as their professional advisors as they move their industry base to other parts of ASEAN. Investors, though, have been very concerned about the potential impact of US tariffs on China and with the spillover on Hong Kong. Is there reason to continue to be worried? Well, we have taken this into consideration. But as you know, the trade between China and the US in terms of total China export

in terms of percentage has been declining. And we in Hong Kong, we basically re-exporting for them. So we have seen tremendous growth in terms of the trade within the Asian region, the Asia Pacific region. So I think perhaps the way for us to respond to that is on the one hand, continue to engage and reinforce the relationship with our U.S. business partners.

but at the same time open up new markets, new capital sources like ASEAN, like Middle East, or in general global south emerging economies. The other concern is also the sanctions list. Is there concern that perhaps Trump may expand that sanctions list? I mean you're the highest ranking non-sanctions executive in Hong Kong. Oh, on this?

sanctions on individuals, we have seen that, it may have caused some inconvenience to the person's concern, but it doesn't cause any systematic risk. So indeed, to us, it's nothing.

Hong Kong's growth is front and centre. People are wondering how you're positioning Hong Kong for long-term growth. For long-term growth, we need to play to our strength and capture the major global trend. Play to our strength, meaning that in terms of international financial centre status, we need to enhance our offerings, our competitiveness. This is one. In terms of trading, as I mentioned, we rely on our

the

The way we see it is technology and innovation. And we have been investing heavily in this area and we focus on four areas. One is artificial intelligence and big data analytics. The other is biotech, health tech. The third one is fintech. The fourth one is new material, new energy. So we groom this sector and also work closely with Shenzhen and other cities in the Greater Bay Area to leverage each other's competitive advantages.

The vision we have is the GBA with the Bay Area will rise as a combination of the San Francisco Bay Area and the New York Bay Area. You talked about Hong Kong's capital market. China has come out to say that investor confidence remains fragile. How do you respond to that? Well, the way we see it, the economy is growing steadily.

the economic structure did have going through transformation, but that would enable the growth to be on a more diversified and sustained basis.

We need to concentrate our efforts in doing the right thing. Say, for example, in the case of the mainland, the economic drivers of growth are domestic circulation and external circulation. And these two reinforce each other. Given the massive size of the mainland economies, by growing private consumption, continuing to invest and adopt technology and digitalization, I believe the high-quality development

will be achieved also with the green transition and investment. Do you think what China said is sort of like a report card of your performance for the year 2024? Well, for us, our role is super connector and super value adder. So in terms of super connector, connecting the mainland capital market with the advanced economies, US, Europe,

and further expanding it to global south emerging economies. In terms of value adding in the process, we bring in not just companies from overseas to go into the GBA, but also organise GBA business delegations to go out together to expand their footprint in the market. So we are trying very hard on both fronts. There is a white paper with ideas on how Hong Kong's capital market can be strengthened. Where are you with that? What's the progress so far?

We always welcome suggestions, welcome ways to improve ourselves. And indeed, we have formed a group to study how to increase our liquidity. And those recommendations of this working group has been implemented step by step. And the world is changing. We need to adjust, rely on ourselves. So if there are useful constructive suggestions, we would love to embrace them.

And of course the budget is coming and there are plans at least being modeled on taxing high income earners. I mean, where are you going with that? Is there an amount you're targeting? Well, you know, tax is a very sensitive issue. For Hong Kong, we need to return our budget to balance in two, three years' time. So on the one hand, it's

expanding income. The other is cutting expenditure growth. The majority of the effort to achieve balanced budget is to cut expenditure growth. In terms of increasing revenue, we have to be very careful. My guiding principle is that, number one, we have to be mindful of the simple and low-tax regime of Hong Kong. This is our core competitiveness.

The second is whatever we contemplate must be on a user pay basis as well as those who can afford can pay a little more. And thirdly, try to minimise the impact on people, on average citizens. So these are the fee guiding principles and we are contemplating around this in the preparation of the budget. Would you consider other measures like the freezing of civil service pay?

or increases? There are different suggestions from the community and this is one of the suggestions put to us. We are evaluating different options and also consider the likely impact of any action the government take on the private sector and on general economy. So we have to be

That's Hong Kong Financial Secretary Paul Chan there in conversation with Bloomberg's Haslinda Amon.

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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