We're taking a closer look at the markets with a focus on China and Hong Kong, with Sophia Ortekasta Bloomberg Chief China Markets correspondent. So, Sophia, let's talk first about these four x reserve adjustments made by the PBOC. Do you think that this will do much more than just delay the decline in the yuan? Yeah? I mean this is really about managing the pace of declines rather than stopping the decline. This is also kind of unraveling what the pbo C did when the UN was on was
strengthening too quickly. Um. And then you know, this is rolling back some of those measures. What happens on September fift when this cut comes into effect is that you'll you'll get more dollars available on shore and that essentially should narrow the yield advantage that the dollar has over the UN and make it less attractive to short uan dollar. But really, you know, seven per dollars just to matter
or of time. It also doesn't really matter. Um, you know when when when the yuan did wee can pass that level? A few years ago, I was covering it and it was such a psychological level because it hadn't happened in so long, had it happened since the global financial crisis, that the pace of weakness accelerated when we broke that. But I don't really see that happening now. It's it's happened before the world didn't end, and and China is really managing the currency weakness right now. Seven
seems a natural barrier. Um. We did break through one forty on dollar yen and there's been all kinds of volatility in the FX markets. Um, in your gut, do you see it on the week side of seven? On the week's side of seven wouldn't surprise me. And I don't think it will be too concerning for authorities. I mean, that's the key thing. This is a very tightly managed currency. The fixing limits the yuan's moves against the dollar two percent on in either direction. But also the key thing here,
Brian is is October sixteenth. That's when the Party Congress starts. It's the biggest event of the decade, says Cities Economics team, And that's really what people are watching for. And all expectations are that things will be stable in markets and in the economy until then. We do have UM the eco data do next week for August. And also the PBC has a chance to cut interest rates again next week. Let's see if that happens. That could give market some direction. Yeah,
that's the thing. We heard again yesterday that there was more stimulus coming. But it's the boy cried wolf scenario. Really, I mean people have heard this many many times, but it does seem that it's a bit more acute at the moment to try to get some support to the economy. Yeah, and and and Brian, the economy will only really improve if there's a significant and sustainable policy easing in terms
of COVID lockdown measures in terms of zero COVID. It's not really about steamers because monetary support will be limited by this. The transmission mechanism is broken when you have of China's GDP currently locked down. So you say it's the boy cried wolf. I agree, but it's also a problem of the boy is crying wolf. But but when when China does roll out supportive measures and stimulus measures,
they won't really work. So it might make sense to hold that firepower until we have some easy of the lockdown. But it's even more problematic because if you think about how sometimes you know people when they haven't spent for a while and they've been constrained, they've been locked down as it were, that there will be a lot of pent up demand to spend later that may not happen in this case because of of the reverse wealth effect,
particularly with the property market. Yes, exactly, And I think that's the one thing that policymakers kind of didn't factor in, which is human behavior and sentiment. You can't control that. You can't change sentiment like this. You can't just flip the switch on that. It doesn't matter if you know, if you throw stimulus at the economy, if you prop up markets, um, it's it's that kind of behavior that will really to find where China's economy will go and
how it will recover. Retails spending is looking very weak. The domestic economy was already pretty weak um during the pandemic before we even had um these more aggressive COVID lockdowns and the property market, that's where the majority of household wealth is. And if you see that, you know your biggest asset is a depreciating asset. You're not going to go out and spend. And if at the moment
you're trying to attract foreign investment. You know, we have this saying, Um, you know, once bitten twice shy, what about five times bitten? How shy would you be on the sixth effort? And I'm referring to the many constraints that we've seen, uh and albeit for what policymakers think are good reasons, but if you look at regulation alone, that has also been kind of stultifying. That is for me, Um.
You know, I was in London for for ten days over the summer, and when I'm talking to foreign investors there, it really is the biggest thing that's that's stopping people from investing in China. The thing is, Brian, China is an economy that's too big to ignore. So people still want to be invested in China's story. They want to do so via other equity markets though that's that's that's where you don't have the exposure to China's The regulation
We could go on forever. It's always a pleasure with you me asking the silly questions and you with the brilliant answers. Sophia. Thank you. Sophia Orto Acosta, Bloomberg Chief China Markets correspondent,